Real-time Monetary Inflation (per annum): 4.4%*
Crude oil started out higher overnight Tuesday as the market tried to extend a rally that pushed the nearby NYMEX West Texas Intermediate [WTI] contract up three-quarters of a dollar on Tuesday. September futures stalled at the $65 level and broke below $64 ahead of the release by the U.S. Energy Information Administration [EIA] of its weekly oil inventory report.
Analysts were expecting a drawdown in oil stocks of 1.2 million to 2.1 million barrels to be reported by the energy agency. Traders, though, kept their eyes on a contradictory estimate from the industry-supported American Petroleum Institute [API] that pointed to a 3.1-million-barrel build.
In the end, Street estimates were closer to the mark. This morning's EIA report showed crude supplies decreasing by 1.8 million barrels. At 342.7 million barrels, though, inventories still remain above seasonal norms.
Gasoline stocks, which had been forecast by Oil Patch observers to increase by 650,000 to 700,000 barrels, actually rose by 800,000, according to EIA. API had predicted a 1.3-million-barrel build.
Distillate fuel stocks, including heating oil and diesel, increased by 1.2 million barrels, slightly less than analysts' expectations. API came in with a guesstimate of a 147,000-barrel increase.
API's call for a decline in refinery utilization to 84% of operable capacity was more accurate than the Street consensus, though. Analysts expected a slight decline to 87.3% but usage, in fact, sunk to 85.8%.
EIA also reported daily gasoline production rising slightly to an average 9.2 million barrels. Distillate fuel production increased, too, to an average of nearly 4.1 million barrels per day. Gasoline demand, now averaging nearly 9.2 million barrels per day, is up 0.7% from year-ago levels, says EIA. Distillate fuel demand, though, remains 11% below last year's seasonal level.
Optimism prevailed among traders in the energy sector this week. The 8.7% gain in crude oil prices was trumped by a 9.5% jump in gasoline and an 11.5% spike in heating oil. The velocity of product prices nudged refining margins higher, though at 15.1%, spreads are still below their 12-month average of 16.5%.
The ETF version of the 2-1-1 crack spread picked up $1.78, or 2.4%, this week (see "Crack Spreads For The Masses").
Oil's quarterly contango widened by an average 58 cents a barrel this week to $3.59. A three-month carry now earns hoarders an annualized yield of 10.6%. Stocks at the Cushing, Okla., terminus for WTI delivery remain stable at 30.8 million barrels.
Technically, September crude has rebounded from a successful 50% retracement of its February-June rally. MACD is ready to turn bullish. RSI is already bullish, though selling volume spiked yesterday as the stochastics indicator popped into oversold territory. Near-term support is at $64.45; a close below $62.47 would rattle oil bulls enough to signal exhaustion of the week's momentum.
*Note: To provide a longer-term perspective, we've pushed back the base for our real-time monetary inflation indicator to May 2006. The base previously was January 2008. The indicator represents the average annual rate of monetary inflation over the period. The current 12-month inflation rate is -3.1%.
