Yesterday's API report was mixed with a larger than expected build in crude oil, a surprise build in gasoline and a larger than expected draw in distillate fuel. Total crude oil stocks increased by 4.2 million barrels versus an expectation for a more modest build. Gasoline showed a surprise build in inventory while distillate fuel stocks decreased versus an expectation for a smaller draw. The API reported a 4.2 million barrel build in crude oil stocks versus an industry expectation for a modest build of around 2.5 million barrels as crude oil imports increased but offset by a modest increase in refinery run rates by 0.7%. The API reported a modest draw in distillate and a build in gasoline stocks.
The API report is neutral to bearish as total stocks built even with the draw in distillate fuel. The oil market is mostly higher heading into the US trading session and ahead of the EIA oil inventory report at 11 AM today. The market is usually cautious on trading on the API report and prefers to wait for the more widely watched EIA report due out this morning. I view the current gains in oil prices to be more related to the economic data and not the API report. The API reported PADD 2 stocks increasing by 0.8 million barrels while Cushing stock decreased by just 15,000 barrels. On the week gasoline stocks increased by about 2.4 million barrels while distillate fuel stocks decreased 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. I am expecting a modest build in crude oil inventories after last week's modest inventory build, a small draw in gasoline and distillate fuel stocks as the weather was more winter like over the east coast during the report period and as refinery runs continue to decline ahead of U.S. maintenance season. 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 26.7 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 build in crude oil stocks in Cushing, Ok as the Seaway pipeline has been has been running at constrained levels for most of the report period. This will be bullish for the Brent/WTI spread in the short term as the spread is currently trading above the level it was trading at just prior to last week's Seaway pipeline announcement.