Engine of global demand picking up steam

This week's energy outlook

The oil complex is higher 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. Crude oil stocks increased by 2.1 million barrels.  On the week gasoline stocks decreased by about 0.5 million barrels while distillate fuel stocks decreased by about 1.5 million barrels. Refinery utilization rates increased by 0.6 percent.

The API reported Cushing crude oil stocks decreased by a larger than expected 2.5 million barrels for the week. 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 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 stocks as the restocking process continues for the fourth week in a row. I am also expecting a small build in gasoline inventories and a draw in distillate fuel on cold weather last week with refinery run rates starting to decline.

I am expecting crude oil stocks to increase by about 2.8 million barrels. If the actual numbers are in sync with my projections the year over year comparison for crude oil will now show a deficit of 10.8 million barrels while the overhang versus the five year average for the same week will come in around 13.3 million barrels.

I am expecting crude oil inventories in Cushing, Ok to show the third weekly stock decrease in a row as the Keystone Gulf Coast pipeline is now operating. I would expect the Cushing stock decline to be in the range of 1.5 to 2 million barrels based on the fact that about 1.7 million barrels of oil was moved out of Cushing to the USGC on Keystone last week. This will be bearish for the Brent/WTI spread this week.

With refinery runs expected to decrease by 0.3 percent I am expecting only 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 coming in around 1.3 million barrels while the surplus versus the five year average for the same week will come in around 4.4 million barrels.

Distillate fuel is projected to decrease by 2.4 million barrels as exports of distillate fuel out of the US Gulf continues while heating demand last week was above normal along the east coast. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 18.2 million barrels below last year while the deficit versus the five year average will come in around 36.3 million barrels.

I am maintaining my oil view and bias at cautiously bullish after the market cleared several technical thresholds. In addition the overall oil fundamentals are still supportive while the selling in the global risk asset markets is starting to ease a tad.

I am maintaining my Nat Gas view at neutral and my bias at neutral as the market sentiment seems to be changing yet again. The Nat Gas market is exhibiting all of the signs of a market that may be in the process of topping out for the short term.

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

Best Regards,

Dominick A. Chirichella

dchirichella@mailaec.com

 

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Dominick A. Chirichella

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