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Bullish Momentum Rules an Otherwise Unruly Day


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Daily Settlement Prices

The upward trend in energy prices continued Wednesday, as bullish momentum ruled the day. June WTI was in the green for most of the day, outside of the narrow range around the Department of Energy’s (DOE) release, when the volatility and the volume increased.

The report’s number did vary from the previous day’s API report. The main difference was in the crude oil stocks, where they could not agree on direction. As previously noted, the API reported a 1.1 million barrel draw, while the DOE was almost a 2 million barrel build (closer to 3.5 million build if you exclude PADD V). However, the 2 million barrel build was still about 500,000 barrels shy of estimates, which was still considered bullish. However, one noteworthy agreement in both reports, was a sizable reduction in crude oil imports. It is unclear how much of this was due to weather vs other fundamental factors.

Department of Energy Highlights (Details in lower section):

  • Crude Oil Inventory +2.0 million bbls
  • Distillate Inventory -1.7 million bbls
  • Gasoline Inventory +1.608 million.

Yesterday the Fed released notes on their two day meeting. It was tough to glean a true sense of how they will react in the future, but nonetheless, markets (including equities) continued to move higher after the news. In a similar move, The Bank of Japan’s sentiment was along the lines of “keep as is,” although the market anticipated a change and equities abroad reacted bearishly.

The bullish momentum and trend in energy drove front month WTI over the very important (and psychological) $45 a barrel level. This is also a level where several Exploration and Production companies may think about reentering the market. Therefore it will be useful to continue to track the weekly rig count that Baker Hughes releases on Fridays. Stay tuned.

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Production Highlights: 

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  • Net inputs of crude oil have fallen over 580 thousand barrels per day from the most recent peak a month ago.
  • A slew of refinery issues (planned and unplanned) have kept refineries limited on actual processing capabilities primarily centered in the Gulf Coast (PADD III).
  • Distillate fuels production has fallen for the fourth consecutive week. Typically production picks up its pace around this time of year or at the very least remains flat.
  • Production of gasoline seems to be the most effected by refinery unit shutdowns. The only reduction week-on-week came from the centralized hub of refining problems.

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Inventory Highlights: 

042816 Crude Oil and Product Inventory Table

  • Crude oil stocks surprised the API but not really anyone one else as market participants estimated a two and a half million barrel build.
  • The crude oil build was a combination of reduced imports – down 637 Mbpd due to severe weather limiting offloading capabilities in the gulf – and reduced refining demand from the issues mentioned above.
  • The largest build of the individual PADDs was in the Midwest which coincidentally recorded only a week-on-week increase in imports of the PADDs.
  • Stocks of distillate fuels saw a second decent draw down, a large portion of which was sourced from PADD II (Midwest) as reports indicate planting in the corn belt is substantially ahead of schedule, and distillate demand to satisfy this has garnered the attention of the marginal barrel.
  • Despite the woes of trying to produce gasoline and the elevated demand for it, inventory levels rose to remain within the total stock level range we’ve reported the past 10 weeks.

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