Oil falls with equities as global economy slows

The API report is mixed and mostly neutral weekly inventory snapshot. The market is a bit higher heading into the US 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 0.3 million barrels of crude oil with Cushing, Okla. showing a small build of 0.07 million barrels while PADD 2 stocks decreased by 0.9 million barrels primarily as a result of the loss of two days of flow from the Keystone Pipeline during the report period. On the week gasoline stocks increased by about 0.2 million barrels while distillate fuel stocks decreased by about 0.9 million barrels. 

My projections for this week’s inventory report are summarized in the following table. I am expecting the U.S. refining sector to increase marginally as the refining sector 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 1.4 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 33 million barrels while the overhang versus the five year average for the same week will come in around 37.5 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 U.S. In addition the loss of about 1.2 million barrels from the shutdown of the Keystone pipeline will impact this week's inventory in the PADD2 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 a relatively high premium to Brent but off of the highs hit about a week or so ago. 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 $20/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.

With refinery runs expected to increase by 0.2% I am expecting a build in gasoline stocks. Gasoline stocks are expected to increase by 0.8 million barrels which would result in the gasoline year over year deficit coming in around 7 million barrels while the deficit versus the five year average for the same week will come in around 6.4 million barrels.  

Distillate fuel is projected to decrease by 0.7 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 27.5 million barrels below last year while the deficit versus the five year average will come in around 30.9 million barrels.