The API report was simply bearish showing much larger builds of refined products than the range of expectations. The crude oil build was within the expectations for more modest draw. Gasoline showed a larger than expected build in inventory while distillate fuel stocks surged versus an expectation for a smaller build. The API reported a build (of about 2.4 million barrels) in crude oil stocks versus an industry expectation for a modest draw as crude oil imports increased even as refinery run rates decreased by 1.6%. The API reported a strong build in distillate and a build in gasoline stocks.
The API report is bearish as the build in crude oil stocks is primarily a function of end of the year LIFO or inventory management that normally happens every year and is starting to make up for the large end of the year decline already seen. Over the next several weeks I would expect to see crude oil imports and stocks to continue to rebuild as the industry readjusts back to more normal inventory operating levels. That said the fact that there was such a large deviation from the expectations will make this morning's EIA inventory report much more interesting. The oil market is mixed heading into the US trading session and ahead of the EIA oil inventory report at 10:30 AM today. 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 2.4 million barrels of crude oil with PADD 2 stocks increasing by 1.5 million barrels while Cushing stock increased by 0.3 million barrels. On the week gasoline stocks increased by about 7.9 million barrels while distillate fuel stocks decreased by about 5.9 million barrels.
My projections for this week’s inventory report are summarized in the above table. I am expecting the US refining sector to increase marginally as the refining sector continues to return to normal from maintenance. I am expecting a modest build in crude oil inventories after last week's large LIFO inventory draw, a build in gasoline and in distillate fuel stocks as the weather was still not winter like over the east coast during the report period. I am expecting crude oil stocks to increase by about 2 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 32.2 million barrels while the overhang versus the five year average for the same week will come in around 44.3 million barrels.
I am expecting a modest build in crude oil stocks in Cushing, Ok as the Seaway pipeline has been shut as the operator ready's for restart later this week at an increased capacity of 400,000 bpd. This will be bullish for the Brent/WTI spread in the short term as the spread is currently trading at its lowest level since late October. The slow return from maintenance in the North Sea as well as the evolving situation in the Middle East have been the main drivers that have resulted in the Brent/WTI spread still trading around the $18.60/bbl level as of this writing. The narrowing of the spread should begin to ease once the North Sea returns to a more normal production level, the situation in the Middle East quiets down and the expanded capacity of the Seaway pipeline starts flowing later this week.