Thursday July 28, 2016
The only real change to the market yesterday was that the calendar flipped a day. After the release of the Department of Energy’s weekly data report, markets were quickly sold off as the downward price action continued. Front month WTI has finished lower five straight trading sessions. Seven of the last eight have finished lower as well, as the continuing theme of an oversupplied market continues. Yesterday’s WTI settle of $41.92 is $9.75 lower than the June 9th WTI price peak. After falling below a key WTI support level early in the week, we are quickly approaching another level. It will be interesting to see how price reacts around the current levels.
Overall, yesterday’s Department of Energy’s report was bullish (see below section for further tables and analysis). While the market anticipated a crude oil draw, we actually saw a decent build. Further, with all the gasoline volume we have talked about, PADD I (East Coast), saw a build of 500,000 bbls.
- Net inputs of crude oil bounced off last year’s level and fell back to the throughput volume of two weeks ago for the reported week.
- There is speculation brewing around the idea that refineries are going to begin reducing runs earlier than they historically have done for the fall maintenance period.
- Production of distillate fuels has been following the historical trend just slightly higher. Typically the trend will continue downward into the fall.
- Gasoline production was flat for the week and overall has finally come off of the abnormal and suspect data point from a month ago.
- The total gasoline output volume remains north of the historical range, fueling the gas bears fire.
- To the surprise of many market participants crude oil stocks built for the reported week, causing many to revisit fears of oversupply across the market.
- The build likely has roots in three areas of the supply and demand landscape; domestic crude production has increased for three consecutive weeks (yes its marginal, but an increase nonetheless), the weekly import figures are back at highest point they’ve been this year, and refineries are processing lower amounts of crude than they were. More crude is coming into the American market and less crude is being demanded.
- A slight draw in distillate stocks went against both the API and market expectations of builds, a large draw out of the southeast (PADD I C) is the likely culprit of the about-face stat.
- Stocks of gasoline continue the steady builds in the peak demand period of the year and the gasoline situation continues to look bearish on a fundamental perspective.
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