Oil foggy after big inventory drawdown in API numbers

Foggy Oil Drawdown

The oil market (NYMEX:CLF14) is getting foggier as the American Petroleum Institute reported 12.4 million barrels drawdown in supply. The market seemed to sense what was coming as the market rallied into the number and exploded afterwards. Yet this shocker caused a massive rally.

Oil was being supported early on word that TransCanada will complete the Keystone pipeline drawing on supply in Cushing and alleviating the glut. This is an issue that we have talked about before as a supportive factor for WTI. We saw the Brent vs. WTI spread come in and that would make sense based on what we saw in the past with the reversal of the Seaway Pipeline. Now some say that the refiners down in Texas can’t handle the crude and will just exchange one glut in Oklahoma to another one in Texas, yet that was the same argument that was made when the Seaway Pipeline reversed and it turned out to be wrong.

The API drawdown in crude was because of a combination of factors. Fog down in Houston disrupted imports. The API reported that crude imports fell by 1.3 million barrels a day last week. At the same time refiners were running wild. We saw crude runs surge 1.7% to 91.5% of capacity. At the same time year-end tax considerations cause oil companies to draw down supply. Still, it was a shock to see that large number but it probably put a smile on the face of OPEC members meeting in Vienna.

OPEC won’t cut, but Iran say that it is their right to raise production if and when oil sanctions are lifted. They made it clear that countries that raised production will have to cut when Iran hopes to bring its oil back onto the marketplace.  At the same time the API is showing that despite the increase in runs, gasoline supply fell 119,000 barrels and distillates up 540,000. It shows that demand for product is very strong.

Get ready for a cold blast! Yes it is warm today, but artic cold will soon follow. El Paso is warning delivery point operators to review their supply. Reuters reported that EPNG is working to increase linepack in advance of the forecasted winter weather expected to move into our service area Wednesday into Thursday.  Below average temperatures are expected through the weekend and into the first half of next week, and as such the potential for supply shortfalls due to  freeze-offs exists. Delivery point operators are encouraged to review their scheduled supplies to ensure that they are aligned with their flowing quantities. Supply operators are encouraged to maintain their deliveries into the EPNG system at their scheduled rates. Underperformance caps will be placed on non-performing supplies. Imbalance payback off the system, such as Make-Up Delivery (MD) transactions, may be limited or denied due to operational concerns related to maintaining adequate linepack.

In the big picture, demand for natural gas (NYMEX:NGF14) continues to rise. Reuters reports that in the U.S. the expansion of the capacity to generate power from natural gas this decade may be far greater than expected, as companies race to  build projects to reap the benefits of low prices and replace retiring  coal-fired plants. Energy companies are expected to add about 55,000 megawatts of gas-fired plants by 2020, according to a Reuters survey of major utilities and power!

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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