Oil waits on inventories as demand expectations lowered

Wednesday's API report was bearish across the board with build in crude oil, distillate fuel and gasoline. Total crude oil stocks increased by a 9 million barrels after a 7.8 million barrel draw the previous as crude oil imports increased strongly while refinery run rates decreased by 0.2%. The API reported a smaller than expected build in distillate fuel inventories and a build in gasoline stocks within the expectations.

The entire oil complex is hovering around the unchanged mark as of this writing and heading into the EIA oil inventory report to be released at 10:30 AM EST 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 increased by about 1 million barrels while distillate fuel stocks increased by about 0.2 million barrels.  

The API reported Cushing crude oil stocks decreased by 0.768 million barrels or the second weekly draw in a row. 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. The July spread is still trading in the new lower trading range and below the $8.25/bbl resistance level for the second trading session in a row. The short term direction is likely to be dependent on the outcome of Cushing and PADD 2 stocks in today EIA report with the momentum suggesting a further narrowing of the spread.

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

I am expecting crude oil stocks to increase by about 1 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 7.7 million barrels while the overhang versus the five year average for the same week will come in around 36.5 million barrels.

I am expecting crude oil stocks in Cushing, Ok to decline for the second week in a row after a month of builds. This will be bearish for the Brent/WTI spread as the fundamentals are in play and are driving the spread in its current narrowing trend. 

With refinery runs expected to increase by 0.3% I am expecting a small 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 15.6 million barrels while the surplus versus the five year average for the same week will come in around 9.4 million barrels.

Distillate fuel is projected to increase by 1 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 4.3 million barrels below last year while the deficit versus the five year average will come in around 11.6 million barrels.

I am maintaining my view of the entire complex at neutral and keeping my bias at neutral. Global demand growth is still looking like it is turning to the downside.  Even the externals have turned into the negative area in the short term.

I am maintaining my view at cautiously bearish after yet another bearish inventory report and another breaching of the trading range low. The fundamental picture is turning more bearish and is looking much less supportive than over the last few weeks.

Markets are mixed as shown in the following table.

Best Regards,

Dominick A. Chirichella

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