Is there capacity to handle next polar vortex?

I am expecting crude oil inventories in Cushing, Ok to show the fifth weekly stock decrease in a row as the Keystone Gulf Coast pipeline is continuing to slowly ramp up its pumping rate. I would expect the Cushing stock decline to be in the range of 1 to 1.2 million barrels based on the fact that less oil was moved out of Cushing to the USGC on Keystone last week due to pipeline problems. This will be bearish for the Brent/WTI spread this week. I am also expecting an above normal build of crude oil stocks in PADD 3(Gulf) of over 2 million barrels.

With refinery runs expected to decrease by 0.3% I am expecting a modest draw in gasoline stocks. Gasoline stocks are expected to increase by 1.4 million barrels which would result in the gasoline year over year deficit coming in around 1.6 million barrels while the surplus versus the five year average for the same week will come in around 2.7 million barrels.

Distillate inventories are projected to decrease by 1 million barrels as exports of distillate fuel out of the US Gulf continue while heating demand last week was mostly seasonal 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 11.9 million barrels below last year while the deficit versus the five year average will come in around 32.6 million barrels.

The following table compares my projections for this week's report 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. Thus, if the actual data is in line with the projections there will only be small changes in the year over year inventory comparisons for everything in the complex.

I am maintaining my oil view and bias at cautiously bullish but with the caution flag flying. The Nymex HO contract experienced a strong sell-off on Friday and it is now below its range support area even with the prospects for another round of colder temperatures across the eastern half of the US starting this week.

I am maintaining my Nat Gas view and bias at neutral as the market sentiment seems is shifting away from the winter weather trading mode. The Nat Gas market is exhibiting all of the signs of a market establishing yet another market top.

Markets were mixed heading into the U.S. trading session as shown in the following table.

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Dominick A. Chirichella

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