Oil watches for sequester deal as inventories rise

Global equities recovered some of the losses from Monday's sell-off as shown in the EMI Global Equity Index table below. With the exception of Japan all of the other bourses in the Index added values over the last twenty four hours. The Index is still lower on the week by about 0.3% with the year to date loss narrowing to 1%. Australia has joined Japan at the top of the leader board while four bourses are still in negative territory for the year to date... Brazil, Paris, Germany and Hong Kong. Global equities remain a negative price support for the oil complex and the broader commodity complex.

Yesterday's API report showed a smaller than expected build in crude oil, a surprise and declines in both gasoline distillate fuel inventories that were within the expectations. Total crude oil stocks increased by 0.9 million barrels versus an expectation for a larger build. Gasoline showed a draw in inventory as did distillate fuel stocks both within the forecasts. The API reported a 0.9 million barrel build in crude oil stocks versus an industry expectation for a larger build of around 2.5 million barrels as crude oil imports increased marginally while refinery run rates increased by 0.7%. The API reported a modest draw in distillate and in gasoline stocks.

The API report was slightly bullish across the board. The oil market is mostly higher heading into the U.S. 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. The API reported PADD 2 stocks decreased by 0.5 million barrels while Cushing stock decreased by 0.2 million barrels. On the week gasoline stocks decreased by about 1.4 million barrels while distillate fuel stocks decreased by about 1.7 million barrels. 

My projections for this week’s inventory report are summarized in the above table. I am expecting the U.S. refining sector to decrease as more refineries move into maintenance mode. 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 draw in gasoline stocks during the report period as refinery runs continue to decline ahead of US maintenance season. I am expecting crude oil stocks to increase by about 2.3 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 33.8 million barrels while the overhang versus the five year average for the same week will come in around 40.3 million barrels.

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