Oil Inventories Swell, Prices Swoon

By Brad Zigler

Real-time Monetary Inflation (last 12 months): 1.3%

Crude oil fell in overnight trading after rising 2.6% in the NYMEX floor session Tuesday. The bearish tone arose after the American Petroleum Institute forecast a 276,000-barrel build in crude oil supplies. The API prediction was published in advance of this morning's weekly inventory report from the U.S. Energy Department.

More significant, though, was the industry's guesstimate for gasoline stockpile growth. API predicted motor fuel supplies climbed by 3.8 million barrels, the biggest build since January. API also forecast a 1.9-million-barrel drawdown in distillate fuels, including heating oil and diesel.

Oil Patch analysts expected a more bullish 1.4-million-barrel drawdown in crude stockpiles, but were more modest in their forecast of a 500,000-barrel build in gasoline inventories. The Street's estimate of a 1.5-million-barrel increase in distillate fuel supplies ran opposite to the API call.

All around, this morning's Energy Department numbers heaped bearishness upon bearishness. Oil stocks jumped 2.8 million barrels, twice the increase foreseen by analysts. The agency also reported a 5.4-million-barrel build in gasoline inventories, well above the API's target. An increase of 3 million barrels in the distillate fuel inventory was also reported by the Energy Department, again twice the expectation on the Street.

Refinery utilization slipped from 86.9% the previous week to 85.6%, according to Energy Department figures. With that, gasoline production fell to a daily average of 8.9 million barrels, while distillate fuel production was cranking up to 4.2 million barrels per day.

Daily gasoline demand, at 9.1 million barrels, is up 4.5% from year-ago levels, according to the Energy Department, but distillate fuel demand, at 3.4 million barrels per day, is down by 8.1%.

Overall margins for 3-2-1 refinery runs fell 22 basis points to 7.08% this week. Margins, which have averaged 16.98% over the past 12 months, are running at their lowest levels of the year.

This week's futures price action gave little clue to inventory expectations for oil and gasoline. Crude rose a modest 0.9% in NYMEX trading, while gasoline futures were essentially flat. Heating oil futures, however, rose 1.6% on the week, more reflective of the API outlook.

Futures-Implied Refining Margins

Crude's three-month roll shrank to $1.14 a barrel Tuesday after averaging $1.33 for the week. The roll cost $1.29 the previous week. Meanwhile, West Texas Intermediate crude's premium over Dated Brent was trimmed to $1.72 a barrel from $2.26 this week.

U.S. Oil Inventory Vs. Contango

Technical signals for crude oil are mixed, indicative of the sideways trading that's constrained the market. Front-month November crude needed to close above its June rally high of $75.83 or below the September low of $67.66 to signal a breakout from the current trading range. This morning's $3 downside reaction to the inventory report made a southbound breakout look more likely. Within minutes of the release, the November delivery slipped through this week's low to the $68.50 level before finding its legs. Previously, volume had been shrinking on recent down days, indicating that sellers may have been reaching exhaustion. With Monday's low taken out, buyers can be expected to make a stand at the monthly nadir of $67.66.

*Note: The monetary inflation rate is calculated daily and represents the change in our proprietary index since this date one year ago. We update long-term inflation in real time as well. Since 1999, the compound annual growth rate in our index is 5.1%.

Comments

[Jasper M:]

GOOD article!

Sep 24 01:33 PM