Oil focuses on inventories as jobs report looms

The tropical weather pattern in the Yucatan is still hanging around. At the moment the weather pattern has a medium chance or 40% probability of becoming a tropical cyclone during the next 48 hours as it drifts generally northward on Wednesday and more quickly northeastward starting on Thursday. At the moment this weather pattern has a very low probability of impacting oil and Nat Gas production in the Gulf of Mexico as the storm is currently projected to move toward Florida and then up the east coast of the U.S.. As long as it is in the proximity of the Gulf Coast we will continue to keep it on our radar.

Wednesday's API report was bullish across the board with draw for crude oil and gasoline and a much smaller than expected build in distillate fuel. Total crude oil stocks decreased by a surprising 7.8 million barrels versus an expectation for a small draw of about 0.2 million barrels as crude oil imports decreased strongly while refinery run rates increased by 1.1%. The API reported a much smaller than expected build in distillate fuel inventories and a surprise draw in gasoline stocks.

The entire oil complex is in positive territory heading into the EIA oil inventory report to be released at 10:30 AM EST on 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.  On the week gasoline stocks decreased by about 1.3 million barrels while distillate fuel stocks increased by about 0.2 million barrels.  

The API reported Cushing crude oil stocks decreased by 0.454 million barrels or the first draw after three weeks of builds. The API and EIA have been very much in sync on Cushing crude oil stocks and as such we should see a similar draw in Cushing in the EIA report. Directionally it is bearish for the spread but at the moment the spread momentum is still biased toward the widening pattern. The July spread is in the vicinity of the $10/bbl technical resistance area. The short term direction is likely to be dependent on the outcome of Cushing and PADD 2 stocks in today EIA report.

My projections for this week’s inventory report are summarized in the following table. I am expecting a small draw in crude oil inventories, a modest build in distillate fuel... as many areas of the US returned to spring like temperatures during the report period... and a modest post-holiday build in gasoline stocks.

I am expecting crude oil stocks to decrease by about 0.2 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 12.8 million barrels while the overhang versus the five year average for the same week will come in around 41.6 million barrels.

I am expecting crude oil stocks in Cushing, Ok to decline slightly after a month of builds. This will be neutral to slightly bearish for the Brent/WTI spread but as discussed in detail above other factors are in play that are driving the spread in its current widening trend. 

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