Wow! Where Did the Oil Go?

By Brad Zigler

Real-time Monetary Inflation (per annum): 4.0%*

Profit-taking took crude oil lower in the overnight session as traders squared their books in anticipation of the U.S. Energy Department's weekly inventory report. Prices in the electronic market drifted downward after nearby September crude jumped $2.44 to $69.19 a barrel in the day session.

Yesterday, traders were focused on an American Petroleum Institute (API) forecast of a 6.1- million-barrel drawdown in the domestic oil stockpile. This morning, though, Oil Patch analysts' contrary guesstimate of a 1.3-million-barrel build had some raking money off the table and hedging their bets.

Analysts also expected gasoline inventories to decline by 1 million barrels, and supplies of distillate fuels, including diesel and heating oil, to increase by 400,000 barrels. The Street also guessed that refineries would operate at 83.8% of capacity.

As it turned out, the Energy Department's figures were more bullish than API figures implied. Commercial oil inventories fell by a whopping 8.4 million barrels, according to the agency. Gasoline supplies dipped by 2.1 million barrels, while distillate stocks decreased by 700,000 barrels.

Refinery utilization, at 84%, was higher than expected. Overall, gasoline production increased and distillate fuel production declined last week. Demand for gasoline is off by 0.1% from year-ago levels. Distillate fuel demand remains weak, with 13.5% less product supplied than this time last year.

Last week, the petroleum complex seemed focused on higher-than-normal seasonal supplies. Nearby crude lost 26 cents a barrel, or 0.4%, but refined products fared worse. Both unleaded gasoline and heating oil gave up a nickel a gallon, or more than 2%.

Crack spreads produced a 14% refining margin as of Tuesday, well below the 12-month average of 17%.

Product Cracks

Crude's three-month roll remained flat at $4.25 a barrel as excess carry shrank 7 cents. The cash-and-carry now yields an annualized 12.7%.

Heavy crude's premium over lighter West Texas Intermediate expanded this week. The barrel price for Dated Brent averaged $3.11 more than domestic oil. Last week, Brent's premium averaged $2.78.

The outsized drawdown in crude oil stocks is likely to set the tone for the rest of the week's trading. Going into today's session, September crude was nosing above its 10-day moving average, though not all signals have flipped from bearish mode. A rally will need to top the contract's near-term high at $72.84 to have real legs. Support should be found at $65.23.

*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 -0.1%.

Comments

[sethmcs:]

I am still wandering where did the oil go?

Aug 19 05:22 PM

[Uncle Pie:]

we burned it! Something like 84 million barrels a day, or about a thousand barrels a second! And they're not making it anymore!

Aug 19 06:08 PM

[nym:]

On another hand, this SA article seekingalpha.com/artic... claims oil is being stored off-shore in surplus tankers seekingalpha.com/artic....

Aug 19 09:39 PM

[nym:]

And this article seekingalpha.com/artic... forecasts weak demand.

Aug 19 09:44 PM

[chinooking:]

ask goldman or jpm where it is

Aug 20 09:55 AM

[Tony Daltorio:]

The large drawdown in oil stocks this week was due to a big drop-off in oil import shipments. Many oil shipments are being diverted elsewhere (China?) where they can get better prices.

Many sellers of oil are getting tired of the downward, Wall Street manipulation of the NYMEX contract and will just sell their product elsewhere.

Aug 20 02:40 PM