Contrary to reports, global oil market already rebalancing
The crude oil complex traded mostly on the defensive once again on Tuesday as the current fundamental outlook seems to have moved into the primary price driver’s seat. At the end of the day the American Petroleum Institute (API) released its weekly inventory snapshot with mostly small changes, with the main feature being a large crude oil inventory build in Cushing, Okla., and a smaller than expected decline in gasoline stocks. Overall, the report was neutral to slightly bearish. Tomorrow the more widely followed EIA fundamental snapshot will be released at 10:30 am EST.
The optimistic longer-term projections that have been issued by the three main reporting agencies as well as from most Wall Street analysts are looking more and more like they may be off the mark as the current fundamentals are in no way suggesting the global oil market is already in a rebalancing pattern.
The externals have been mixed so far this week with the global equity markets in a light round of profit taking selling while the U.S. dollar is correcting to the downside after hitting new highs against most major currency pairs. Equities are slightly negative for the oil complex while the U.S. dollar is slightly positive or in essence both nullifying each other so far this week.
Global equity markets ended the U.S. trading session about unchanged after a small loss on Monday. Tuesday’s marginal increase appears to be most likely a result of cautious trading ahead of the U.S. Federal Reserve FOMC meeting, which began on Tuesday. The overall EMI Global Equity Index increased marginally by 0.05% with the year to date gain holding around 9% and still near the high for the year (so far). Six of the 10 bourses in the Index remained in positive territory for 2016. Japan has slightly edged China out of the worst performer spot by 0.1% with Brazil still on top with a 31.3% gain for the year. The about unchanged direction of global equities market was a neutral to marginally negative price driver for the oil complex on Monday.
Weekly inventory projections for crude
The API released its data late Tuesday afternoon showing a draw in both total crude oil stocks and gasoline and a small build in distillate fuel inventories. Crude oil stocks in Cushing showed a strong build but total U.S. crude oil stocks declined. The API reported a smaller than expected draw in gasoline and a smaller than expected build in distillate fuel inventories.
As shown in the table below the API reported U.S. crude oil stocks decreased by 0.8 million barrels with Cushing inventories increased by about 1.4 million bbls on the week. They also reported a 0.3 million bbl build in distillate fuel and a 0.4 million bbl draw in gasoline stocks. Total combined inventories of crude oil and refined products were marginally lower for the week and within the range of market expectations also shown in the table above.
My projections for this week’s inventory report are summarized in the table shown here. I am expecting a draw in crude oil stocks and a build in refined product inventories. I am also expecting another record high build in total combined crude and refined product inventories.
My projections for this week’s inventory report are summarized in the following table. I am expecting a draw in total crude oil stocks, a build in distillate fuel and gasoline inventories. I am expecting a build in total combined crude and refined product inventories.
I am expecting crude oil stocks to decrease by about 1.5 million barrels. If the actual numbers are in sync with my projection the year over year comparison for crude oil will now show a surplus of 58.3 million barrels while the overhang versus the five year average for the same week will come in around 134.1 million barrels.
I am expecting crude oil inventories in Cushing to build this week as the net inflow (inflow-outflow) into Cushing showed a modest increase last week. Even with some storage capacity still available in Cushing the economics of storing oil is not currently very interesting.