Oil rebounds from 5-month low as inventories decline

Tuesday's API report was mixed with a bias to the bullish side. Total crude oil stocks increased less than the expectations by 0.9 million barrels. The API reported another surprisingly large build in gasoline inventories and a larger than expected draw in distillate fuel stocks. Total inventories of crude oil and refined products decreased strongly on the week.

The oil complex is higher as of this writing heading into the EIA oil inventory report to be released at 10:30 AM EST 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.  On the week gasoline stocks decreased by about 4.3 million barrels while distillate fuel stocks decreased by about 2.7 million barrels.  

The API reported Cushing crude oil stocks decreased by 1 million barrels for the fourth weekly build 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 bullish for the Brent/WTI 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 as well as for refined products as refinery run rates are projected to increase this week.

I am expecting crude oil stocks to increase by about 1.3 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 10.4 million barrels while the overhang versus the five year average for the same week will come in around 39.7 million barrels.

I am expecting crude oil stocks in Cushing, Ok to increase modestly for the fourth week in a row of gains but I am expecting the pace of the building to begin to slow as refiners come back from maintenance as well as Keystone south begins to add line fill ahead of its start up. This will be bullish for the Brent/WTI spread this week.

With refinery runs expected to increase by 0.2%, I am expecting a build in gasoline stocks. Gasoline stocks are expected to increase by 1 million barrels, which would result in the gasoline year-over-year surplus coming in around 12.4 million barrels while the surplus vs. the five-year average for the same week will come in around 9.6 million barrels. Gasoline supplies are more than adequate going forward as total gasoline stocks remain well above both last year and the so-called normal five-year average.

Distillate fuel is projected to increase by 1.2 million barrels even as exports of distillate fuel out of the U.S. Gulf remains robust. If the actual EIA data is in sync with my distillate fuel projection, inventories vs. last year will likely now be about 5.8 million barrels above last year while the deficit vs. the five-year average will come in around 19.1 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 in directional sync with the projections. Even so if the actual data is in line with the projections there will be modest changes in the year over year inventory comparisons for everything in the complex.

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