Another Big Oil Drawdown

By Brad Zigler

Real-time Monetary Inflation (last 12 months): 1.8%*

After a $2-per-barrel boost in the NYMEX floor session Tuesday, October crude oil futures held steady at the $71 level overnight as traders prepared for the release of the U.S. Energy Department's weekly inventory report.

Nearby NYMEX Crude Oil (WTI)

The American Petroleum Institute [API] estimated that crude stocks rose by 631,000 barrels, far less than analysts' guesses of a 2.4-million- to 2.5-million-barrel drawdown. Everybody underestimated the inventory off-take, though the Street was closer to the mark. Energy Department figures showed oil supplies fell by 4.7 million barrels.

A half-million-barrel build in gasoline stocks was called correctly by the Street as well. API's estimate of a 1.4-million-barrel add was a lot more bearish than analysts' forecast of a 500,000- to 700,000-barrel increase.

The Energy Department reported that distillate fuel inventories, including diesel and heating oil, increased by 2.2 million barrels, a middling number in light of the 5.2-million-barrel build forecast by API and a 1.3-million- to 1.6-million-barrel add eyed by sell-siders.

Street estimates for refinery usage—a decline to 86.8% of operable capacity—was pretty much on target. Refineries operated at 86.9% as gasoline production scaled back to an average 9 million barrels a day and distillate fuel refining increased to a daily average of 4.2 million barrels.

Measured over a four-week period, the Energy Department says gasoline demand is up 3.5% from year-ago levels. A report from MasterCard Inc., however, shows retail gasoline sales languished at an eight-month low last week, little changed from the prior week's consumption.

Distillate fuel demand, according to government figures, is down by 6.8% from the same period last year.

Petroleum Futures

Both crude oil and heating oil were flat this week; gasoline eased marginally. Refining margins, accordingly, slipped to a 7% average vs. a 12-month mean of 17%. Refining mixes slightly favor heating oil and heavier distillates now.

The futures market contango continued to trim this week, with the three-month roll averaging $1.29 a barrel vs. $1.74 last week.

Crude Oil Contango Vs. Inventory

Despite Tuesday's rebound, technical factors have ticked over bearishly on the range-bound oil market. Sellers are active above $70 in the nearby October NYMEX contract.

Bulls could take a run at the recent reaction high of $73.52, but resistance at $72.90 would have to be overcome first. The reaction low at $67.05 is the current bearish target, with support at Monday's low of $68.02.

*Note: The monetary inflation rate is calculated daily and represents the change in our proprietary index over the last 12 months. We update long-term inflation in real time as well. Since 1999, the compound annual growth rate in our index is 5.3%.

Comments

[upgrayed:]

So what are you selling?


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>
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>
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>
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Sep 16 08:15 PM