Oil finds bearish surprise in IEA monthly report

Yesterday's API report showed a surprise draw in crude oil, a surprise draw in gasoline and a draw in distillate fuel that was within the expectations. Total crude oil stocks decreased by 2.3 million barrels versus an expectation for a modest build. Gasoline showed a draw in inventory while distillate fuel stocks decreased within the forecasts. The API reported a 2.3 million barrel draw in crude oil stocks versus an industry expectation for a modest build of around 2.5 million barrels as crude oil imports decreased along with a small decline in refinery run rates by 0.2%. The API reported a modest draw in distillate and in gasoline stocks.

The API report is mildly bullish as total stocks declined. The oil market is mostly higher heading into the U.S. trading session and ahead of the EIA oil inventory report at 10:30 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.  The API reported PADD 2 stocks decreased by 0.6 million barrels while Cushing stock decreased by 1.1 million barrels. On the week gasoline stocks decreased by about 0.8 million barrels while distillate fuel stocks decreased by about 1.6 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 decrease marginally. I am expecting a modest build in crude oil inventories, a modest decline in distillate fuel... as the weather was very winter like over the east coast... and a small build in gasoline stocks during the report period even 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 35.1 million barrels while the overhang versus the five year average for the same week will come in around 39.9 million barrels.

I am expecting a build in crude oil stocks in Cushing, Ok and in PADD 2 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 well above the level it was trading at just prior to the Seaway pipeline announcement.

With refinery runs expected to decrease by 0.2% I am expecting a small build in gasoline stocks. Gasoline stocks are expected to increase by 0.3 million barrels which would result in the gasoline year over year surplus coming in around 2.2 million barrels while the surplus versus the five year average for the same week will come in around 3.7 million barrels.

Distillate fuel is projected to decrease by 1 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 15.1 million barrels below last year while the deficit versus the five year average will come in around 16.6 million barrels.

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