Crude Oil

Crude Oil Market

Slightly positive news from Europe on Wednesday and a huge draw reported in the latest EIA weekly oil inventories report were enough to move oil prices higher and WTI one step closer to the triple digit price level. The large draw was viewed as modestly bullish since a good portion of the draw was likely related to end-of-the-year LIFO inventory adjustments. With few important comments or news snippets hitting the media airwaves over the next week or so (due to the holidays), many risk asset markets could experience a continuation of the short covering rally started a few days ago.

The ongoing story of Iran and the broader Middle East (including Iraq now that the U.S. military is gone) will continue to act a put in the oil market with exposure for price spikes at any time. The geopolitics of the region will once again be on the radar and will from time to time act as the main price driver for the oil complex. There are enough geopolitical events evolving in Iran, Iraq, Egypt, Syria, Kazakhstan and Nigeria to suggest that over the medium, term supply issues could emerge. The most active at the moment are the protests in a major oil city in Kazakhstan that could impact oil flow and exports from that area while a major Shell pipeline spill in Nigeria has cut production of a 200,000 bpd export flow.

Weekly EIA Oil Inventories Report

The inventory report showed a modest build in total stocks, an as-expected build in distillate inventories, along with a huge build in gasoline stocks as implied demand was higher while refinery utilization rates declined strongly on the week to 85.1% of capacity a decrease of 2.6% in refinery run rates. The data are summarized in the following table along with a comparison to last year and the five year average for the same week.

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Total commercial stocks of crude oil and refined products decreased strongly on the week by 18.2 million barrels. The year-over-year status of total commercial stocks of crude oil and refined products remains in a deficit position for the 38th week in a row. The year-over-year deficit widened to 41.3 million barrels while the overhang versus the five-year average for the same week came in around 5.1 million barrels.

Crude oil inventories decreased versus an expectation for a much smaller draw with a major decrease in PADD 3. With a decrease in stocks this week, the crude oil inventory status versus last year is still showing a wide deficit of around 17.1 million barrels while the surplus versus the five-year average for the same week narrowed to around 1.5 million barrels. PADD 2 stocks increased by 0.8 million barrels on the week while Cushing stocks declined by about 1 million barrels. Crude oil inventories in this region of the U.S. have been in a decline and are still at levels not seen since the middle of 2010 when the Brent/WTI price spread was trading at significantly lower levels. The price spread continues to trade in a trading range of between $9 to $11.50/bbl premium to Brent.

Distillate stocks decreased versus an expectation for a modest build. Heating oil/diesel stocks decreased by 2.4 million barrels as exports seemed to increase on the week. The year-over-year deficit widened to 21.6 million barrels while the five-year average deficit widened to about 4.3 million barrels.  With the economics and demand still likely to hold outside the U.S. and unless the upcoming winter heating season comes in much colder than any of the expectations, the current level of exports will likely continue.

Gasoline inventories decreased modestly on the week versus an expectation for a modest build. Total gasoline stocks decreased by about 0.4 million barrels on the week versus an expectation for a build of about 1.0 million barrels. The surplus versus last year came in at 1.2 million barrels while the surplus versus the five-year average for the same week narrowed to about 8.9 million barrels.

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Weekly Oil Inventories Report

The API data released yesterday evening showed across the board draws. The API reported a large draw in crude oil stocks versus an expectation for a modest decline in crude oil inventories of about 4.6 million barrels, as crude oil imports decreased and refinery run rates also decreased by 2.1%. The API reported basically small draw in gasoline stocks versus projections for a modest build and a larger-than-expected draw in distillate fuel inventories.

The market was expecting a modest draw in crude oil stocks and a modest build in gasoline with a small draw in distillate fuel inventories this week. The report is somewhat bullish for the entire complex.

It is difficult to differentiate whether the price gains overnight were from the inventory report, or from the falling U.S. dollar and positives out of Europe. The market remains hostage to the evolving situation in Europe that has been unfolding once again this week as discussed above with inventory data a secondary driver.

The more widely watched EIA data will be released this morning.  Whether or not the market will react to anything that comes out of the EIA this morning will be dependent on what revolves around Europe today. Finally keep in mind that the large variations from the expectations are likely related to the industry starting to adjust their inventories for LIFO accounting purposes.

Weekly EIA Oil Inventories Report: Draws in All Three Reported Commodities and Hydrocarbon Prices are Down‏

The Energy Information Administration (EIA) has issued its weekly oil inventories report for the week ending Friday, November 4, 2011.   Comparisons of the earlier and less-followed API report, projections for this week’s EIA report, and today’s EIA report are shown below.This report is “bullish” as most inventories were materially less robust than projected.

Upon the EIA’s report release, light crude oil was trading $96.14 per barrel, down $.66 from yesterday’s close for December, largely on jitters from economic uncertainty in Europe. Natural gas for December was trading at $3.667 per MMBtu, down $.078 from yesterday’s close.

Analysts anticipate this week’s natural gas storage report from the EIA will show a net injection from as low as 17 Bcf to as high as 50 Bcf, with an early consensus around 26 to 33 Bcf. The data will compare against historical average builds including a 23-Bcf five-year-average injection and a build of 26 Bcf for the same week in 2010.

Natural Gas Market “Neutral”, Crude Oil Market “Bullish”

The natural gas market view has moved back to “neutral.” With the short term weather forecast a less bearish than it has been, the market mounted a decent short covering rally on Tuesday, pushing prices just above the $3.61/MMBtu resistance level. The market has been oversold and the current rally can only be categorized as a short covering rally and not a major shift in the underlying trend. Depending on the EIA/NOAA winter outlook to be released later today, the market could be pushed off of its “neutral” perch.

With WTI crude oil now trading above the $85/bbl level, the market is keeping its bias on the “bullish” side, with a caution flag that the direction over the last few days can change quickly if any of the looming macroeconomic data due out this week are negative or if any of the 30 second news snippets surrounding Europe are “bearish.”

Later today the EIA will release their Winter Outlook in conjunction with their “Short Term Energy Outlook.” Based on both the IEA and OPEC reports, we can expect the EIA to lower their projection for global oil demand growth.

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Oil inventories materially less robust than projected

The Energy Information Administration (EIA) has issued its weekly oil inventories report for the week ending Friday, September 30. The EIA’s report is attached. Comparisons of the earlier and less-followed API report, projections for this week’s EIA report, and today’s EIA report are shown below. This report is “bullish” as inventories were materially less robust than projected.

   Weekly Oil Inventories Reports for the Week Ending Friday September 30, 2011

Million Barrels

API Report

Projections

EIA Report

Crude Oil

-3.1

2.0

-4.7

Gasoline

-5.0

0.8

-1.1

Distillate

-2.0

0.5

-0.7

Upon the EIA’s report release light crude oil was trading $78.12 per barrel, up $2.43 from
yesterday’s close for November. Natural gas for November …

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