Crude market on the way to recovery

May 6, 2015 09:15 AM
Weekly Energies Analysis

Crude oil prices are soaring this morning after the American Petroleum Institute (API) reported the first crude draw since the end of the year along with the second draw in Cushing, Okla. Refiner demand is picking up as the spring maintenance season winds down. Last night’s API report will make this morning’s more widely followed Energy Information Administration (EIA) oil inventory report that much more important. The market sentiment remains based to the bullish side with the API data adding to the growing view that the market is on the way to recovery.

The market has been continuing in its uptrend this week supported by a pipeline closure in Libya due to a protest along with the falling U.S. dollar. The surprise draw in crude oil stocks in the United States is being cautiously embraced in overnight trading as the market awaits confirmation from the EIA. The above said there is still a significant surplus of oil in the world especially in the United States.

Global equities were mixed with Asian bourses getting hit with another round of profit taking selling. The EMI Global Equity Index gained 0.10 percent on strong moves to the upside in Europe and in Brazil. The year to date gain for the Index is now at 12.3 percent. Global equities have been a neutral indicator for the direction of oil prices this week.

The API data was released late Tuesday afternoon showing a draw in total U.S. crude oil stocks as well as a draw in Cushing with the EIA inventory report scheduled for release on Wednesday at 10:30 am. Finally, the EIA Nat Gas inventory report will be released on its regular schedule on Thursday at 10:30 AM EST.

My projections for this week’s inventory report are summarized in the following table. I am expecting an across the board build in crude oil and in both distillate fuel and gasoline with refinery utilization rates increasing on the week.

I am expecting crude oil stocks to increase by about 1.6 million barrels with total inventories hitting another new record high and still growing. If the actual numbers are in sync with my projections the year over year comparison for crude oil will now show a surplus of 94.9 million barrels while the overhang versus the five year average for the same week will come in around 112.6 million barrels.

I am expecting crude oil inventories in Cushing to show a draw this week as the outflow from Cushing increased strongly last week. With storage capacity still available in Cushing storage trades may or may not take place as the economics of storing oil in both the US and internationally are now only marginal. Run rates in the PADD 2 region are approaching normal levels as the main part of the spring maintenance season is winding down.

The TransCanada (Keystone) Gulf Coast line decreased its pumping rate last week with the line running below the 500,000 bpd level. Genscape is reporting a flow of 480,435 bpd or a decrease of 30,472 bpd compared to the previous week. Last week the combination of the TransCanada Gulf line and both Seaway lines moved about 8.1 million barrels of crude oil out of Cushing or about 1,011,405 barrels more than the previous week.

This week there was a strong decrease in the net inflow (inflow-outflow) into Cushing primarily driven by a large increase in the outflow versus the inflow.  With a strong decrease in the net inflow this could result in a possible draw build in Cushing this week as more oil seems to be heading out of Cushing. The net inflow (inflow-outflow) into Cushing is around the 1.7 million barrels for the week ending May 1st compared to 3.3 million barrels during the previous week.

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Energy Market Analysis is published daily by the Energy Management Institute 1324 Lexington Avenue, # 322, New York, NY 10128. Copyright 2008. Reproduction without permission is strictly prohibited. Subscriptions: $129 for annual orders. Editor in Chief: Dominick Chirichella, Publisher: Stephen Gloyd, Editor Sal Umek.