This is the first EIA report after OPEC's recent production cut and, except for a very large Cushing, OK build, the numbers look fairly normal for this time of the year with a build in gasoline and distillate inventories more than offsetting the drop in crude oil stocks. However, as the post-OPEC rally in crude oil prices was losing a bit of steam, at least since in yesterday, crude oil prices (NYSEARCA:USO) dropped by about $0.50/bbl after the report was released only to rebound to unchanged.
Source: Finviz.com
Stocks:
* Crude oil inventories decreased by 2.4 million barrels.
* Gasoline inventories increased by 3.4 million barrels.
* Distillate inventories increased by 2.5 million barrels.
A moderate decrease in crude oil stocks more than offset by a build in gasoline and distillate inventories. Overall, the change in stocks of crude oil + gasoline + distillates is reasonable for this time of the year.
Having said that, since the end of the summer we have gotten accustomed to reasonably bullish data pretty much every week, with an occasional week reversing the good news. One week ago (last week's EIA report) was that week. In that sense, this week's numbers are slightly bearish, although as we mentioned, otherwise normal for this time of the year.
In addition, there was a very large build in Cushing, OK this week, on top of what were already very high inventory levels.
Source: EIA
Production and Refinery Utilization:
* Domestic production stayed virtually unchanged with a small modeled drop of 2,000 barrels per day.
* Production in the Contiguous United States (excluding Alaska) stayed mostly unchanged.
* Net imports increased by 730,000 bpd.
Source: EIA
* Refinery utilization increased by 60 basis points and is below normal for this time of the year. This of course can be explained by very high gasoline and distillate inventory levels and a loss of competitiveness in the export market following narrower WTI/Brent spreads.
Source: EIA
Cushing, Oklahoma:
* Cushing, OK inventories increased by 3.8 million barrels. Although inventories tend to accumulate during this time of the year and up until April/May, this is still problematic given the lack of destocking during 2016's summer season. As a reminder, the working storage capacity of Cushing, OK is around 75 million barrels.
Given the large build in pipeline capacity in the 2012-2014 period, inventories at Cushing, OK are no longer as defining for crude oil prices as they used to be.
* Gulf Coast inventories decreased by 6.9 million barrels, in a way more than offsetting the Cushing, OK stock build. Regardless, inventories in the Gulf Coast and at Cushing, are still near historical highs.
Source: EIA
Conclusion:
The build in gasoline and distillate stocks was fairly reasonable for this time of the year. However, the build in Cushing, OK inventories is too large, too early, and builds from already very high levels given the lack of destocking during this year's driving season. Although, not as defining as they used to be, Cushing, OK inventories should still be carefully monitored in the coming weeks.
