Oil sees optimism in global economy, waits on inventory confirmation

The API report was mixed and not in sync with the range of expectations. The crude oil build was much higher than expected while gasoline showed a surprise draw versus an expectation for a modest build while distillate fuel inventories built strongly versus and expectation for a modest draw. The API reported a build (of about 3.7 million barrels) in crude oil stocks versus an industry expectation for a much smaller build as crude oil imports increased strongly while refinery run rates decreased modestly by 0.6%. The API reported a strong build in distillate stocks. They also reported a modest draw in gasoline stocks.

The API report is mixed and mostly biased to the bullish side for gasoline but bearish for both crude oil and distillate fuel. The market is mixed heading into the Asian trading session and ahead of the EIA oil inventory report at 10:30 AM tomorrow. The market is always cautious on trading on the API report and prefers to wait for the more widely watched EIA report due out this morning. The API reported a build of about 3.7 million barrels of crude oil with Cushing, Okla. showing a draw of 0.14 million barrels while PADD 2 stocks decreased by 0.3 million barrels which is slightly bearish for the Brent/WTI spread. On the week gasoline stocks decreased by about 1.2 million barrels while distillate fuel stocks increased by about 1.8 million barrels. 

My projections for this week’s inventory report are summarized in the following table. I am expecting the US refining sector to increase marginally as it begins the process of returning from fall maintenance programs. I am expecting a modest build in crude oil inventories, and a build in gasoline and another draw in distillate fuel stocks as the weather was colder than normal over the east coast during the report period. I am expecting crude oil stocks to increase by about 1.5 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 35 million barrels while the overhang versus the five year average for the same week will come in around 35.6 million barrels.

I am expecting a modest draw in crude oil stocks in Cushing, Okla. as the Seaway pipeline is now pumping and refinery run rates are continuing at high levels in that region of the US. This would normally be bearish for the Brent/WTI spread in the short term but the spread is currently trading at the highest premium to Brent in over a year. The slow return from maintenance in the North Sea has been the main driver that has resulted in the Nov Brent/WTI spread now trading over the $24/bbl level as of this writing. The widening of the spread should begin to ease once the North Sea returns to a more normal production level over the next month or two.

With refinery runs expected to increase by 0.2% I am expecting a build in gasoline stocks. Gasoline stocks are expected to increase by 1 million barrels which would result in the gasoline year over year deficit coming in around 9.9 million barrels while the deficit versus the five year average for the same week will come in around 8.2 million barrels.  

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