Thursday June 23, 2016
Oil prices settled lower on Wednesday after the weekly Department of Energy (DOE) inventory summary reported a smaller than expected draw in crude oil stocks. The moderately bearish report caused a sharp downturn in flat price, which was up early in the day on continued strength this week. WTI did rally late in the day to pare some of the losses, and the market still appears to be content to trade in the current range.
August WTI, which became the prompt contract on Wednesday, was trading over $50 early, with support from the view that the “Brexit” referendum (voted upon today) will fail. The market did move sharply lower, however, following the DOE report. The results of this week’s summary were as follows:
- Crude Oil – draw of 0.9 MMbbls (versus expected draw of 1.7 MMbbls)
- Gasoline – build of 0.6 MMbbls (versus expected draw of 0.3 MMbbls)
- Distillate – build of 0.2 MMbbls (versus expected build of 0.3 MMbbls)
Though the absolute changes were significant, they did paint a bearish picture. Gasoline demand was up again, nearly 10 million barrels per day, but gasoline production was even greater than that. For a more detailed look at the report, please read below.
The market shifted lower quickly, and went into the red for the day by noon. By mid-afternoon, August WTI was down well over a dollar (and just above $48), but the aforementioned late rally shaved half of those losses by day’s end. Apparently the DOE report wasn’t so bearish that it merited a huge drop in the market. By day’s end, August WTI settled at $49.13 (down 72-cents).
RBOB and Heating Oil settled down about a penny, though in recent days RBOB has affirmed itself as the strongest component of the sector. The RBOB / HO spread was as narrow as two cents late last week, though that has widened to eight cents now.
- Crude oil throughputs increased slightly more than the API estimated, the majority of the increased being sourced from the Gulf Coast refining hub (PADD III).
- Refining crack spreads continue to suggest the incentive for refineries to continue pumping product profitably, indicating the seasonal increase in runs is more likely than not to continue through the summer.
- Distillate production edged back ever so slightly mirroring last year’s level, the top of the historical range for the distillate fuels output.
- Production of gasoline ticked higher as demand for gasoline continues to offer opportunities for the offtake.
- Commercial crude inventories drew less than market participants had anticipated (over four million barrels less than the API published).
- The weekly crude import volumes were up week-on-week at the total U.S. level breaking above the historical five-year average.
- Stocks of distillate fuels built slightly, lead primarily by PADD I all of which centered in the Mid-Atlantic – now at levels we haven’t seen this time of year since 2010.
- Inventory levels for gasoline saw an unexpected build last week. The build came on the back of PADD II storing product as the East and Gulf Coasts drew (PADDs I and III respectively).
- Gasoline demand posted a new record level north of 9.8 million barrels per day. Demand is largely expected to continue trending higher at least through the July 4th weekend.
Published by PAPCO, Inc. (PAPCO)
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