Thursday June 9, 2016
Oil prices rose for the third straight day. This reaffirms a settle above $50, even with continued weakness in the dollar and a larger than expected crude oil stock draw in the weekly Department of Energy (DOE) inventory summary.
After dipping below $49 last Friday, the front month WTI contract is up nearly three dollars this week, making new, 11-month highs in the process. The large DOE crude oil draw was certainly price supportive (though, that was somewhat offset by builds in the product categories). The continued noise, however, in addition to production issues in Nigeria are adding support to the flat price. Recent vandalism by the Niger Delta “Avengers” has reduced Nigerian oil output by at least half a million barrels per day (and Nigeria produces very good, light, sweet crude oil), further reducing the global supply / demand imbalance. The recent weakness in the dollar, attributed to interest rate comments by Fed Chair Janet Yellen, is also lending support to the recent mini-rally in oil.
July WTI has traded very similarly lately, with gradual increases early and one or two pushes during the day. The $50 barrier added some strong psychological and technical resistance. A sustained rally or settles above $50 could lead to the bears throwing in their towel.
The market did flail a bit on Wednesday morning after the DOE report came out, but those losses were quickly erased, and the market retained and sustained its gains for the day. The results of this week’s DOE report were as follows:
- Crude Oil – draw of 3.2 MMbbls (versus expected draw of 2.7 MMbbls)
- Gasoline – build of 1.0 MMbbls (versus expected draw of 0.7 MMbbls)
- Distillate – build of 1.8 MMbbls (versus expected draw of 0.1 MMbbls)
Refiner activity picked up last week (more demand), which led to an increase in finished products (more gas and distillate supply). Gasoline demand was moderately down week-on-week, but is still quite strong. For a more detailed view of this week’s data, please read below.
WTI lost about 50-cents initially, though the market was still up for the day. That set-back, however, was minor and prices resumed their strong showing for the balance of the day. With momentum clearly on the side of the bulls, negative price news like the product stock builds are more easily dismissed. July WTI settled on Wednesday at $51.23, up 87-cents. As an insignificant factoid, the front month WTI contract has settled with a $48-handle, a $49-handle, a $50-handle and a $51-handle in four consecutive trading days.
Despite the product stock builds, both RBOB and Heating Oil posted big gains (bigger than WTI), with RBOB posting an especially big day change (noteworthy since RBOB has been so weak of late). Each of the finished product contracts settled three cents higher (July RB at $1.6198 / gallon, July HO at $1.5705 / gallon). Midwest gasoline, and Chicago in particular, is seeing extremely strong price moves to the upside.
- Net inputs of crude oil bounced higher for the reported week, similar to the week-on-week movement from last year.
- Crude throughputs may drift week to week, but historically the overall trend has increased through late July into early August.
- The distillate production level continues to seesaw around the historical five-year average. In the past there has been a small run up in production through July.
- Production of gasoline declined substantially in the reported week. All five PADDs reported marginally reduced gasoline output.
- Domestic production of crude increased the largest weekly amount of the year with 10-thousand barrels per day.
- Commercial crude stocks fell just shy of the API estimate on the back of reduced imports and increase refiner demand.
- Distillate inventories finally returned to the normal seasonal build, ending seven weeks of continual draws – which saw 13.9 million barrels removed from reported stocks.
- The stocks of gasoline seem to have found an equilibrium for the early summer as the total inventory level has been within 2 million barrels 240MMbbls for nine consecutive weeks.
Published by PAPCO, Inc. (PAPCO)
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