Report: Huge build in crude stocks

March 23, 2016 09:51 AM
Weekly Energy Market Analysis

Crude oil prices are mixed with crude oil and heating oil starting the trading session in negative territory while gasoline is positive on the day. The main driver in the overnight trading period and into this morning is the mixed inventory report released by the American Petroleum Institute (API) late yesterday afternoon. They reported a huge build in crude oil stocks (but a draw in Cushing, Okla.) with declines in refined product inventories.

The API inventory outcome is somewhat typical for this time of the year when U.S. refiners are in the spring maintenance season. Generally runs decline (API did not release run data) resulting in builds in crude oil and draws in refined products. The API data is far less accurate than the Energy Information Administration (EIA) inventory data that will be released later this morning. The crude oil market reaction has been modest since the API data release as many in the market prefer to wait for the more widely followed EIA data that will hit the media airwaves at 10:30 AM EST.

On a bearish note, Reuters is reporting that Iran’s Vice President is quoted as saying "Until January we could only export 1.3 million barrels of oil but two months after the (lifting of) sanctions we are exporting 2.2 million barrels of oil per day." Certainly if these numbers are accurate, Iran is having more success in returning to pre-sanctions levels than what has been forecast by the various agencies including the IEA.

The Iranian comments on higher production levels suggests that even if a production freeze deal gets done in April OPEC production is likely to still increase across the year based on Iran continuing to grow their production. In addition as I have been discussing for several weeks some U.S. shale producers are building their hedge portfolios with the front end of the WTI market over $41 per barrel and Cal 2017 in the mid-$40’s. The higher the price goes the more hedging the producers will do and thus increasing the likelihood that the projected decline in U.S. production from current levels may not materialize. We may be approaching a cap in the current price rally in the not too distant future.

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