Weekly WTI Crude Oil Inventory Analysis: EIA release of 20th March

Weekly WTI Crude Oil Inventory Analysis: EIA release of 20^th March

Summary of today’s release: last weeks’ change in Crude Inventories figures:

API: -0.4mb

EIA Consensus:  +2mb

EIA actual: -1.3mb

US crude inventories dropped by a surprise -1.3mb last week, against a consensus forecast for a rise of 2mb. The fall was a result of a -2.7mb drop on the West coast, which is often discounted from US models due to its isolation from the rest of the country in terms of oil transportation. Without this drop, inventories actually rose.

The Breakdown

While a fall in West Coast stocks caused the positive headline number, inventories at Cushing also declined for the second week running. With new pipelines coming in to place next quarter (See Seaway No Solution), signs stocks are already dropping provide a bullish view for the market. Gulf coast stocks continued to rise, which is normal for this time of year, although EIA watchers should continue to observe the region to watch out for a possible supply glut transfer from Cushing to the Gulf coast.

US production dropped slightly, and as the production chart below shows the trend has certainly slowed in the last month. The production change can produce headline effects if the increase in large, and so such a sign provided support for crude fundamentals. Likewise refineries ramped up their through-put and utilisation which could be the start of the spring production upturn. Such a thought was given support by the sixth week of gasoline stock withdrawal, providing room for absorption of further future production.

While refineries may have increased their demand, total crude product and in particular gasoline demand did fall. The time series is quite variable, but may nevertheless spook some traders given demand that low had not been seen since early January. On the other hand support for US crudes was provided by imports dropping, and as the chart below shows, the 12-week MA for this series is clearly on a downward trend, reaching lower and lower lows.

How Markets Reacted

The individual market reaction to this release is hard to pin point, given the strong market reaction to the euro area situation in Cyprus as well as the announcement by the Federal Reserve today that the monetary easing program will continue. Overall, the bearish components of rising stocks in a non-West Coast sense as well as a fall in product demand did not seem to detract from otherwise bullish sentiment in afternoon trading, although WTI then dropped off again in the late US afternoon session, ending the US trading session -0.1% down.

Next week’s release

The main point to watch next week will be Cushing supplies, as the completion of the Longhorn pipeline reversal should mean some crude deliveries to the Gulf Coast can bypass the mid-West hub, which would buoy WTI markets and possibly result in a large narrowing of the Brent-WTI premium. At the same time look out for a possible correction next week if we see two consecutive weeks of gasoline demand falls. Indeed, such a result is possible because of the cold weather and snow in the North East Coast of USA this week, which could reduce demand there.