Surprise in crude inventory numbers

A bit of a surprise in the American Petroleum Institute inventory data showing a 10.3 million barrel draw in crude oil (NYMEX:CLM14) mostly due to a 860,000 bpd or a about 6 million barrel reduction in crude oil imports for the week ending May 16. 

This surprise along with the ongoing geopolitical issues in the Ukraine and Libya were enough for the newly anointed spot July WTI (NYMEX:CLN14) contract to breach yet another resistance level with prices now trading above the $103/bbl level. Brent has lagged WTI as the Brent/WTI spread continues to narrow.

The July Brent/WTI spread has been narrowing since hitting a short term peak around May 5 at a tad over $9/bbl. Since then the spread has declined by $2.30/bbl or 25 percent. The spread is now back into a lower trading range bounded by $5.25/bbl n the support side and $7/bbl on the resistance end. The spread has been in a long term narrowing trend for the majority of this year with occasional bouts of widening. The spread has been in a long term process of working its way back to a more normal relationship that existed between both of these marker crude oil prior to the huge crude oil surplus build up in the Cushing area.

The API reported another draw in Cushing stocks of about 260,000 barrels resulting in Cushing crude oil stocks hitting another new year to date low as well as being below last year and the five year average for the same week. Cushing stocks are very close to the pre-surplus five year average level for the same week. Further reductions are likely as additional takeaway capacity out of Cushing (Seaway Twin Line) begin operations. I have been of the view that the spread will move back to its pre-surplus trading range with WTI trading at a premium of around $0.80 to $1/bbl over Brent over the next three to six months.

Global equities declined modestly over the last twenty four hours. The EMI Global Equity Index declined by 0.74 percent sending the Index back into a year to date loss of around 0.6 percent. Japan remains the worst performer of the ten bourses in the Index with Canada remaining on top of the leader board. The US Dow dropped back into a loss for the year. Global equities have been on the defensive after less than optimistic data regarding Chinese growth as well as comments by several US Fed members regarding the U.S. easy money policy likely starting to change in 2015. Global equities have been a negative price driver for the oil complex this week.

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