Oil finds fundamentals turning more bearish ahead of inventories

Tuesday's API report was bearish for crude oil and supportive for refined product markets. Once again there was a major surprise with the API data with a much larger than expected build in crude oil stocks and larger than expected draws in refined products. Total crude oil stocks increased by 5.2 million barrels versus an expectation for a modest build of about 1.0 million barrels as crude oil imports increased while refinery run rates decreased by 0.3%. The API reported a surprise draw in distillate fuel inventories versus an expectation for a small build. Gasoline stocks declined much more than expected.

The entire oil complex is still in negative territory on disappointing data out of China overnight and heading into the EIA oil inventory report to be released at 10:30 AM EST on Wednesday. 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 declined by around 2 million barrels while Cushing stock decreased by 1.39 million barrels. On the week gasoline stocks decreased by about 2.7 million barrels while distillate fuel stocks decreased by about 1.1 million barrels. 

My projections for this week’s inventory report are summarized in the following table. I am expecting a modest build in crude oil inventories, a small build in distillate fuel... as some areas of the U.S. returned to spring like temperatures during the report period... and a draw in gasoline stocks even as refinery runs are expected to show a small gain.

I am expecting crude oil stocks to increase by about 1.0 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 13.7 million barrels while the overhang versus the five year average for the same week will come in around 31.3 million barrels.

I am expecting a modest draw in crude oil stocks in Cushing, Ok even though the Pegasus pipeline has remained shut down for all of the report period. This will be bearish for the Brent/WTI spread and should serve as a catalyst to continue the current narrowing trend of the spread in the short term. 

Even with refinery runs expected to increase by 0.3 percent I am expecting a small draw in gasoline stocks. Gasoline stocks are expected to decrease by 0.5 million barrels which would result in the gasoline year over year surplus of around 7.6 million barrels while the surplus versus the five year average for the same week will come in around 4.8 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 8.2 million barrels below last year while the deficit versus the five year average will come in around 18.7 million barrels.

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