Oil prices drift lower after build in inventories

Even with refinery runs expected to increase by 0.2% I am expecting a modest draw in gasoline stocks. Gasoline stocks are expected to decrease by about 0.8 million barrels which would result in the gasoline year over year surplus coming in around 5.3 million barrels while the deficit versus the five year average for the same week will come in around 23.8 million barrels.  

Distillate fuel is projected to increase by 0.5 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 20.1 million barrels below last year while the deficit versus the five year average will come in around 0.8 million barrels.

The following table compares my projections for this week's report (for the categories I am making projections) with the change in inventories for the same period last year. As you can see from the table last year inventories declined across the board. As such if the actual data is in line with the projections there will be a modest

I am keeping my view at neutral for oil as WTI remains within my predicted trading range of $102 to $106/bbl. At the moment the oil complex is still going through a spread realignment driven by a reduction in the tensions in the Middle East and thus a receding of the Iranian risk premium along with a sentiment swing in the Brent/WTI spread due to the early start of the Seaway pipeline. I am more comfortable staying on the sidelines today for the flat price market.

I am keeping my view at neutral and keeping my bias also at neutral with an eye toward the upside.  The surplus is still building in inventory versus both last year and the five year average and could lead to a premature filling of storage during the current injection season.  However, I now believe that we may see other producers starting to signal a cut in production. We may still see lower prices (thus the basis for my bias) but I think the sellers are losing momentum.

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