Oil finds support in equities despite slowing demand

I am expecting crude oil stocks to increase by about 1.5 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 16.1 million barrels while the overhang versus the five year average for the same week will come in around 34.6 million barrels.

I am expecting a small draw in crude oil stocks in Cushing, Ok even though the Pegasus pipeline has remained shut down for all of the report period. Last week the Keystone pipeline experienced an unscheduled interruption in the flow of oil out of Canada which subsequently resulted in reduced flow into Cushing. Although the line was back to full operation by mid last week the impact of Keystone likely resulted in a modest decline in Cushing inventories during the report period. This will be bullish for the Brent/WTI spread and should serve as a catalyst to keep a cap on any further widening of the spread in the short term. 

With refinery runs expected to increase by 0.4 percent I am expecting a 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 of around 10.3 million barrels while the surplus versus the five year average for the same week will come in around 7.1 million barrels.

Distillate fuel is projected to increase by 0.5 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 10.2 million barrels below last year while the deficit versus the five year average will come in around 16.3 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 not in directional sync with some large differences compared to last year’s changes. As such if the actual data is in line with the projections there will be modest changes in the year over year inventory comparisons for most everything in the complex. 

 

I am maintaining my view of the entire complex at a cautiously bearish bias as inventories are starting to build and moving the complex back into a supply driven mode rather than a demand led market. In addition demand growth is starting to turn to the downside.  Brent has now breached its range support level again with WTI and refined products not faring any better. The complex is now suggesting that the next move is likely to be a continuation to the downside.

I am maintaining my view at neutral for Nat Gas and maintaining my bias back at neutral even though the spot Nymex contract is continuing to trade above the $4.16/mmbtu level. The market failed for the third day in a row to breach the $4.40/mmbtu resistance and then turned to the downside since failing yesterday. That is a bearish signal and one that suggests that the market may now test the lower $4.16/mmbtu support level.

Markets are mostly higher at the start of the European trading session as shown in the following table.

Best Regards,

Dominick A. Chirichella

 

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