Oil Inventories Report Full of Surprises

By Brad Zigler

Industry guesstimates were universally off-base this week as the U.S. Energy Department's weekly inventory report played havoc with over/under parlays.

Crude oil stocks, which were expected to be off anywhere from 300,000 to 1.7 million barrels, rose by 1.7 million barrels. There was the faint breath of oversupply in pre-market trading as crude oil traded was swapped at slightly lower prices. At 301.8 million barrels, U.S. crude oil inventories, though, are still below seasonal averages.

Yesterday, the crude oil market was quiet. The United States Oil Fund (AMEX: USO) closed virtually unchanged Tuesday at $110.95, but was off 29 cents in pre-market trading this morning. At the open, spot NYMEX crude opened 80 cents lower ahead of the inventory report while USO widened its pre-market loss to 58 cents a share.

Refinery usage, which had been expected to rise 0.2% this week to 89.5%, instead fell to 88.6%. Operations, though, were more efficient as gasoline and distillate fuel production rose.

One-month crack spreads shrank $1.45 a barrel on NYMEX over the week, consistent with normal seasonality. The spot refining margin stood at 10.2% at the close Tuesday. Heating oil prices were narrowly lower over the week while gasoline prices rose 1.7%. Crude input costs rose 2.2%.

Rising storage costs and high crude prices are keeping refiners shy about building inventories. The nearby quarterly contango stood at 78 cents a barrel yesterday, about half last week's level.

Gasoline inventories decreased 100,000 barrels last week. Industry expectations ranged from an increase of 200,000 barrels to a drawdown of up to 750,000 barrels. Supplies remain below normal despite an increase in production to 9.1 million barrels per day.

This week's MasterCard's SpendingPulse survey revealed U.S. demand for gasoline fell 2.7% percent last week compared with year-ago levels.

Distillate stocks, including inventories of diesel and heating oil, increased by 2.8 million barrels, ahead of expectations of a 1.5-million-to-1.7-million-barrel increase. Production of middle distillates increased to 4.6 million barrels per day over the last week. The uptick in stocks caught traders by surprise. Heating oil has been slightly higher overnight, while yesterday's $62.05-per-share close in the United States Heating Oil Fund (AMEX: UHN) represented a 14-cent gain on the day.

NYMEX Crack Spreads/Refining Margins

Comments

[redbaron]

One week does not a trend make. Where were these comments for the past 5 weeks when crude inventories were dropping for 5-6 million barrels per week. When taken in the context of a view of a 6 weeks, the trend in crude inventories is clearly down. What does that say? Quite frankly, it is dumb to try to analyze this market using one week of inventory data. Any such attempt must include longer trend data, and when that is done, quite the opposite conclusion is reached.

A larger question might well be asked, is: 'Is the data accurate?'. And if the answer to that question is, 'Not Sure!', then what are we doing here in trying to analyze data that we are not sure is accurate?

Too much analysis, and not enough information. Not enough good data.

[Seriously]

Redbaron is questioning the information because it doesn't go along with his very narrow view of the energy situation. It is quite funny to see.

[ManagingEditor]

Redbaron -

This article is part of a weekly series of reports on oil and fuel inventories run on Hard Assets Investor (HardAssetsInvestor.com)

There WERE comments five weeks ago. They were here: "Crude Oil Flips to Contango" (www.hardassetsinvestor...) and here: seekingalpha.com/artic..., as well as in "Crude Oil Dances To Contango," (seekingalpha.com/artic...).

There's more reportage than analysis in these rweekly eports. Intentionally.

On top of the numbers presented in the Energy Department status reports, HAI's articles also cite consensus forecasts from outside analysts, updates on crack spreads/refiniing margins and the values of related ETFs.

The argument about accuracy, seems to me, a straw man.

What "information"... is lacking from this report on oil inventories?

[barnburner]

It's the source of the reports on oil inventories that I believer Redbaron is questioning. I don't know who issues that report but if it's the Government we only have to look at the other economic numbers the Government put out to be suspicious that it might be tainted with political agenda-in other words "bullshit".

[StillLaughing]

I'm sorry, I'm in no way impuning the fact that whoever reports is obviously inflating inventories to set a pro oil bubble "agenda" but wouldn't it make sense that if the price is skyrocketing and economic production growth has slowed, the U.S. might not be buying as much? After all, oil is the only source of energy right?