The oil (NYMEX:CLN14) complex is currently trading in sync with the outcome of the API oil inventory report issued late yesterday evening. The API reported a draw in total U.S. crude oil stocks and another draw in Cushing stocks (see below for a more detailed discussion).
The report was biased to the bullish side, with market participants now currently looking for a similar outcome from this morning’s EIA inventory report. Although there was a modest draw in total crude oil stocks in the U.S., there is still a huge surplus of crude oil that needs to be worked down in the Gulf region.
The massive destocking of crude oil stocks (over 20 million barrels off this year’s highs) that has taken place in Cushing has resulted in the Brent/WTI spread narrowing this year versus where it averaged for 2013, as well as the year-to-date average for 2014 so far. The industry may be in the early stages of a turning point with crude oil stocks in the U.S. (in particular the Gulf region) starting to decline. If so, the narrowing pattern of the Brent/WTI spread is likely to accelerate.
Today’s oil pricing direction will be primarily influenced by the outcome of this morning’s EIA oil inventory report, especially if it is in directional sync with the API data. Oil fundamentals have been the primary oil price driver for the last month or so, as the macroeconomic data has been mostly uneventful with the global economy relatively static.