Oil profit taking may become buying opportunities

The API report was mostly in the range of expectations with the exception of distillate fuel. The crude oil build was as expected while the gasoline build was a bit below expectations while the distillate decline was a surprise. The API reported a build (of about 2.4 million barrels) in crude oil stocks versus an industry expectation for a modest build as crude oil imports increased strongly while refinery run rates also increased modestly by 3.5%. The API reported a surprise draw in distillate stocks. They also reported a smaller than expected build in gasoline stocks.

The report is mixed but more biased to the bearish side for everything other than distillate. The market is marginally higher heading into the Asian trading session and ahead of the EIA oil inventory report at 10:30 AM Wednesday.  The market is always cautious on trading on the API report and prefers to wait for the more widely watched EIA report due out Wednesday at 10:30 AM. The API reported a build of about 2.4 million barrels of crude oil with Cushing, Ok declining about 0.7 million barrels while PADD 2 stocks also declined by 0.7 million barrel which is bearish for the Brent/WTI spread. On the week gasoline stocks increased by about 0.1 million barrels while distillate fuel stocks decreased by about 1.1 million barrels. 

My projections for this week’s inventory report are summarized in the following table. I am expecting the US refining sector to still be working its way back to a full return to normal operations from the preemptive shutdowns ahead of Isaac. I am expecting a modest build in crude oil inventories, a build in gasoline and a seasonal build in distillate fuel stocks as Isaac shut-ins played only a minor role during the inventory report period. I am expecting crude oil stocks to increase by about 2.5 million barrels. If the actual numbers are in sync with my projections the year over year comparison for crude oil will now show a surplus of 15.2 million barrels while the overhang versus the five year average for the same week will come in around 32.2 million barrels.

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