Thursday May 12, 2016
A trove of bullish data led the crude oil prices higher on Wednesday, in the process setting new highs for this calendar year and breaking the market out of its recent sideways funk. Aside from continuing global oil supply disruptions ...
- Canada - up to one million barrels per day
- Libya - over one million barrels per day
- Nigeria - estimated roughly one million barrels per day
... the market was surprised at the results of the weekly Department of Energy (DOE) inventory summary, which showed draws in all three major products categories (including a healthy draw in crude oil stocks).
Finally, on top of the DOE data, the International Energy Agency (IEA), the economically advanced world's energy watchdog, published its monthly oil summary, in which it said oil supply in large consuming nations declined in both February and March. These results were unexpected, and reversed previous estimates for those months. These facts and figures were more than enough to spur a significant round of buying, and likely some short covering, which led WTI to its new heights.
June WTI posted a dollar-plus gain on Tuesday, and opened the market data-rich day on Wednesday virtually unchanged (around $44.50). Oil has seen its fair share of "large" day changes this month, though price action has largely been contained in a three or four dollar range. After trading sideways in the morning, the market took a decidedly bullish direction after the mid-morning DOE reports. The results were as follows:
- Crude Oil - draw of 3.4 MMbbls (versus expected build of 0.7 MMbbls)
- Gasoline - draw of 1.2 MMbbls (versus expected draw of 0.7 MMbbls)
- Distillates - draw of 1.6 MMbbls (versus expected draw of 1.0 MMbbls)
The large crude oil draw came despite an increase in refinery runs (demand), while gasoline demand continues to run unabated (up five percent year-on-year). For a more detailed view on the DOE data, please read below.
The market ramped, revved and roofed higher in the immediate aftermath of the data release, with June gaining about a dollar in 10 minutes. The finished products (RBOB,in particular) were also advancing quickly. The pace of advance indicates some extreme short covering ("panic selling"). WTI then took a backseat to the products, watching RBOB move up a penny at a time (June RBOB ultimately settled with a near ten-cent gain). A very late push brought WTI to its highs of the day and June WTI settled at $46.23 (up $1.57 from Tuesday). This figure marks the top of the recent WTI range (technical resistance, the front month WTI contract has hit right around this number a few times in the last week before falling off). A strong push through it in the coming days could signal that $50 is not too far away.
June RBOB gained 10-cents (noted above), while June Heating Oil settled merely six cents higher. Though a 10-cent move is attention grabbing, RBOB has been the weakest member of the energy complex of late. In fact, even with this significant move higher, the June RBOB contract is still down for this month. Again, short covering likely played a big part in the big move on Wednesday.
- Refinery runs increased again following the historical trend, which typically peaks sometime between July and August.
- PADD II crude oil throughputs have increased each of the last four weeks to bring the total processing level above the average.
- Production of distillate fuels was essentially flat week-on-week and remains at the historical average level.
- Gasoline production came off some; lead primarily by PADD I.
- Last Friday it was reported that a gasoline desulfurization unit unexpectedly shutdown at PES' Philadelphia refinery. The unit shutdown would infer this coming week would also show reduced gasoline production out of the East Coast.
The API number was spot on for the crude oil stock change, albeit they had it going the wrong direction.
The distillate demand is north of four million barrels per day and this helped continue to draw down inflated stock levels.
Inventory levels in the Southeast (PADD I C) has finally returned to a level in the same ball park as past years for the week.
Gasoline inventories share the same story as the distillate barrels, but with record setting demand figures.
Gasoline imports were down for the reported week, which combined with reduced production led to less gasoline coming in with more going out.
Published by PAPCO, Inc. (PAPCO)
PAPCO Newsletter Disclaimer. The information that is published in this newsletter, including the market reports, is derived from trade, statistical, and other sources that we believe are reliable and accurate. However, PAPCO does not guarantee the completeness, accuracy, or reliability of such information, and information should not be relied upon as such. Additionally, PAPCO assumes no responsibility for the material contained in the newsletter and the views expressed therein. Further, PAPCO expressly disclaims any express or implied warranties or guarantees with regard to such information. The information contained in this newsletter and any views expressed herein are provided for your informational purposes only and should not be interpreted in any way as an offer, invitation to make an offer, inducement, or recommendation to buy or sell options contracts, commodity futures, products, or any other type of security.