Brent/WTI spread widens as surplus of crude comes into focus

Global Equities were about unchanged over the last twenty four hours. The EMI Global Equity Index declined marginally by 0.06 percent with the year to date loss holding around the 0.6 percent level. Five of the 10 bourses in the Index are now in positive territory for 2014 with Japan still showing a double digit loss of 10.7 percent for the year. Global Equities have been a neutral for the oil complex over the last twenty four hours while the falling U.S. Dollar Index (NYBOT:DXH14) is supportive for oil and commodity markets.

Wednesday's API report was biased to the bullish side as total crude oil stocks increased less than the expectations while gasoline inventories declined more than expected. Crude oil imports into the US decreased by 201,000 barrels per day with refined product exports from the US likely increasing from the Gulf region. Total inventories of crude oil and refined products combined were lower on the week.

The oil complex is trading mostly higher (except WTI) 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 0.5 million barrels.  On the week gasoline stocks decreased by 3.4 million barrels while distillate fuel stocks increased by 0.6 million barrels. Refinery utilization rates increased by 1.7 percent.

The API reported Cushing crude oil stocks decreased by 781,000 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 another modest build in crude oil stocks as the spring refinery maintenance season picks up momentum. I am also expecting a modest draw in gasoline inventories and a small draw distillate fuel last week with refinery run rates decreasing slightly last week.

I am expecting crude oil stocks to increase by about 2.5 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 8 million barrels while the overhang versus the five year average for the same week will come in around 27.6 million barrels.

I am expecting crude oil inventories in Cushing, Ok to decline slightly as outflow from the region decreased last week. The throttling back of refinery utilization rates in the PADD 2 region is likely to result in a reduction in crude oil demand and thus a slowing of the destocking of crude oil inventories in both PADD 2 and Cushing which is neutral for the Brent/WTI spread.

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