DOE Report Adds Kick #3 to the Gut of the Oil Market

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Energy markets sold off during Wednesday’s trading session. The downward momentum was started overnight Tuesday and into Wednesday morning. This early movement was the result of the market being caught off guard by a build in crude oil inventory levels, as reported by the API Tuesday.

Markets then witnessed further downward pressure after the release of OPEC data by the IEA. In a review of June numbers, the IEA noted that OPEC crude oil production rose 400,000 barrels to bring the total crude oil production by the cartel to 33.21 million barrels a day. This figure represents and eight year high for their production, and quells fears over lost Nigerian production. This growth in supply is another bearish overhang for the market.

The negative price action was pushed even further, following the release of the weekly inventory numbers by the Department of Energy. The market quickly glazed over the crude oil draw, which was in line with expectations, and focused on the surprisingly large build on the product side.

Despite crude runs being down for the week, gasoline stocks built 1.2 million bbls with a staggering distillate build of 4 million bbls. As a result of these builds, product future prices came off dramatically. Front month HO broke below the $1.4000 level, a resistance point it had bounced off of in the three of the previous four sessions. This surprise in the DOE report (see more below), ruled the rest of the day and was the driving force behind yesterday’s volatile day.


Refinery Highlights:

071416 Refinery Productivity Table

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  • Net inputs of crude fell off, defying market expectations and the API report. The reduced runs were localized to the East coast and Midwest, which likely has roots in the reduction in gasoline production.
  • Production of distillate fuels increased week-on-week with the three markets we primarily watch accounting for roughly half of the addition.
  • As expected,  gasoline production fell off substantially as refiners solidify the view that the production levels were unsustainable given the current supply and demand landscape.

Inventory Highlights:

071416 Crude Oil And Product Inventory Table

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  • Commercial crude inventories drew despite the API call for a build.  The draw is seasonally normal for this time of year.
  • Shock of the week:  Distillate fuels built double what most in the market had anticipated.
  • The Mid-Atlantic (PADD I B) was the end point for the build on the East Coast, which typically leads to weakness in the NY Harbor.
  • Gasoline stocks built slightly in the main three PADDs, but builds in the heat of summer are problematic for the market.
  • Gasoline demand was down week-on-week.  This is actually quite surprising as this data point includes the July 4th weekend – historically the peak demand weekend of the year.

Published by PAPCO, Inc. (PAPCO)

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