Thursday October 6, 2016
The Department of Energy (DOE) inventory summary reported a fifth consecutive week of crude oil stocks draws, surprising the market and providing another bullish kick in oil's advance towards the $50 plateau. Though, ultimately, the November WTI did not cross that threshold during the day, it seems a question of only when, not if, that will happen (and, in fact, WTI did move above $50 around 8:30 this morning).
The DOE report showed large draws in both crude oil and distillate products, adding a spark to a market that didn't need much to continue its advance. All told, crude oil stocks have declined more than 25-million barrels in the last five weeks and are below 500-million barrels in total for the first time since January this year.
After taking a break most of Tuesday, the Wednesday oil market was on the move higher before the DOE data was even released. Whereas earlier in the week, when oil seemed to follow RBOB's lead over worries that Hurricane Matthew would disrupt waterborne supply into the Northeast, yesterday's move up was supported by Heating Oil. That said the new theory is that diesel demand will peak soon because of agriculture and farming season.
The overall results of this week's DOE report were as follows (a detailed view of the data, follows this summary):
- Crude Oil - draw of 3.0 MMbbls (versus expected build of 2.6 MMbbls)
- Gasoline - build of 0.2 MMbbls (versus expected build of 0.7 MMbbls)
- Distillate - draw of 2.4 MMbbls (versus expected draw of 0.7 MMbbls)
WTI moved up after the report, and came very close to breaching $50 by mid-day. The afternoon saw multiple failed attempts to break through that number, but even those failures did not result in a significant pullback. To wit, November WTI stayed between $49.60 and $49.90 all afternoon. At the close, the front month contract settled at $49.83 (up $1.14 on the day).
Heating Oil posted a three cent gain while RBOB was marginally lower. The revised projected path of Hurricane Matthew indicates little chance of supply disruption, though very likely some demand destruction due to the anticipated heavy rains.
- Net inputs of crude by refineries continues to fall at a pace equivalent to last year's. Historically speaking we should expect throughput levels to decline for another week or two before they begin to come back.
- Distillate fuels production was flat week on week which is to be expected with refineries running at reduced rates as a whole.
- Production of gasoline was up as the East Coast and Midwest continue to pump out gasoline.
- Stocks of commercial crude are continuing to gradually decline. The draw is solely from the Gulf Coast region with the rest building.
- Distillate stocks are also drawing, however, we are drawing from an extremely elevated level from two weeks ago.
- Inventories of gasoline built slightly, but appear more flat week on week graphically. The East Coast levels are still being effected by the aftermath of the pipeline disruption.
Published by PAPCO, Inc. (PAPCO)
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