Global crude surplus still alive
The current narrative that will likely dominate the discussions in the market are likely to be centered on the following:
• When will the global oil market move into a balanced position,
• When will record high global inventories enter into a sustained destocking pattern,
• How high can oil prices go before the decline in U.S. shale production is reversed as US producers continue to add to their hedge portfolios,
• How will global oil demand hold up… in particular in China.
There will be a variety of answers or rather projections for each one of the aforementioned discussion items coming from various sectors of the market. Over any given timeframe the market sentiment is going to swing between bullish (which is the current short term sentiment) and bearish as various views/projections gain and lose followers. For the short term the market is still in a discount the bearish news and embrace anything even remotely bullish. But that sentiment could change quickly if the current fundamental data continues to be bearish.
Global equities were mixed over the last twenty four hours but the EMI Global Equity Index was able to end the period with another overall gain. The Index increased by 0.48 percent to another new year to date high of 5.5 percent. Four of the bourses in the Index remain in negative territory for 2016 with Brazil leading the group higher with an almost 24 percent year to date gain. China remains at the bottom of the leader board. Global equities have been a positive price directional driver for oil prices this week along with support coming from the declining U.S. dollar for most of this week.
The API released their data late Wednesday afternoon reporting a larger than expected build in total US crude oil stocks with a small draw in Cushing, Okla. They also reported a surprise draw in distillate fuel inventories and a draw in gasoline stocks that was within the expectations. U.S. crude oil stocks increased by 3.1 million barrels with Cushing inventories decreasing by about 0.2 million barrels on the week. They also reported a 2.5 million barrels draw in distillate fuel and a 1.0 million barrels draw in gasoline stocks. Total combined inventories of crude oil and refined products were slightly lower on the week.
Overall the API data points released were mixed with a bearish bias for crude oil and gasoline and a supportive outcome for distillate fuel. The market is trading lower across the board in early U.S. trading and ahead of Wednesday’s (10:30 am EST) EIA data release. Finally the EIA Nat Gas inventory report will be released on Thursday at 10:30 AM EST.
My projections for this week’s inventory report are summarized in the following table. I am expecting a build in crude oil and distillate fuel inventories and a draw in gasoline stocks as refinery runs are projected to decrease. I am also expecting a small build in total combined crude and refined product inventories.