Oil watches for sequester deal as inventories rise

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 and refinery runs are starting to throttle back for maintenance in the region. 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 0.3% I am expecting a draw in gasoline stocks. Gasoline stocks are expected to decrease by 0.8 million barrels which would result in the gasoline year over year deficit coming in around 0.3 million barrels while the surplus versus the five year average for the same week will narrow to around 0.7 million barrels.

Distillate fuel is projected to decrease by 1.5 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 19.3 million barrels below last year while the deficit versus the five year average will come in around 21 million barrels.

The following table compares my projections for this week's report (for the categories I am making projections with the change in inventories for the same period last year. As you can see from the table last year's inventories are mostly in directional sync with this week's projections. As such if the actual data is in line with the projections there will be only small changes in the year over year inventory comparisons for just about everything in the complex

I am moving my view of the entire complex to cautiously bearish. That said I am continuing to fly the caution flag as any additional equity market corrections will impact oil prices in much the same way... another round of profit taking selling as we experienced yesterday.

I am maintaining my Nat Gas view and bias at neutral as the weather forecasts and nearby temperatures are supportive. As I have been discussing for weeks the direction of Nat Gas prices are primarily dependent on the actual and forecasted weather pattern now that we are still in the heart of the winter heating season and currently those forecasts have turned a tad more bullish at the moment.

Markets are higher ahead of the US trading session as shown in the following table.

Best Regards,

Dominick A. Chirichella

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