Oil focuses on geopolitics as inventory draw looms

I am expecting crude oil stocks to decrease 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 4.6 million barrels while the overhang versus the five year average for the same week will come in around 39.9 million barrels.

I am expecting crude oil stocks in Cushing, Ok to decrease this week after a few weeks of builds. This will be bearish for the Brent/WTI spread as the fundamentals are in play and are driving the spread.

With refinery runs expected to increase by 0.2 percent I am expecting a modest build in gasoline stocks. Gasoline stocks are expected to increase by 0.5 million barrels which would result in the gasoline year over year surplus of around 21.1 million barrels while the surplus versus the five year average for the same week will come in around 14.3 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 5.3 million barrels above last year while the deficit versus the five year average will come in around 15 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 mostly not in directional sync with some 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 now have a mixed view for the oil complex with my crude oil bias at cautiously bullish, neutral for HO and cautiously bearish for RBOB gasoline. The overall oil fundamental picture is still biased to the bearish side but the changing view of how long QE3 may or may not last in the US is providing some support to the crude oil on a macro basis.

I am maintaining my Nat Gas view and bias at cautiously bearish based on a less supportive short term temperature forecast and bearish weekly inventory report. The fundamental picture as shifting back to a more bearish mode.  

This week the EIA will release its inventory on Wednesday, July 3rd at 12 noon due to the Independence Day holiday on Thursday. This week I am projecting the twelfth injection of the season of 80 BCF into inventory. My projection for this week is shown in the following table and is based on a week that experienced some above normal temperatures during the report period. My projection compares to last year's net injection of 41 BCF and the normal five year net injection for the same week of 71 BCF. Bottom line the inventory deficit will narrow this week versus both last year and the so called more normal five year average if the actual numbers are in sync with my projections. This week's net injection will be slightly bearish when compared to the historical data.

If the actual EIA data is in line with my projections the year over year deficit will come in at about 483 BCF. The deficit versus the five year average for the same week will narrow to around 22 BCF. The early market consensus is projecting the eleventh injection of the season in the range of 65 BCF to 85 BCF with the Reuters market consensus around 71 BCF.

Markets are mixed heading into the US trading session as shown in the following table.

 

Best Regards,

Dominick A. Chirichella

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