Summary of this weeks’ EIA crude inventories release:
API: +0.046 mb
EIA Consensus: +2.2 mb
EIA actual: -0.95 mb
This week’s EIA inventories release showed a shock fall in
crude inventories, despite a fall in refinery inputs and operating utilization.
Rather this fall in stocks appears to be a result of a large decrease crude
imports. While US crude production continued to increase at a startling rate,
there were also signs of demand picking up with an increased total petroleum
products supplied number, including the much watched gasoline demand.
The Breakdown
Crude inventories fell by -0.95 mb in the US at the end of
last week, against a consensus expectation of +2.2mb . Some of those surveyed would
not have known about the API release that came in at a small increase of 0.046
mb, but given the fact the two surveys often differ from each other a negative
number would not have been completely unexpected.
There were some signs in the breakdown that at first point
seemed bearish. For instance gasoline stocks continued to increase for the 8th
week running, by 1.9 mb, to reach the highest point since February of 2011.
However, as the chart below shows such a rise is normal for this time of year,
with stocks peaking each January/February.
While there was a fall in crude inventories, there was also
a fall in refinery input and utilisation levels
- hence it is natural to ask how this fall in stocks came about with a
lower refinery demand. The answer appears to be in the import numbers, with
crude imported into the US falling by 312,000 b/d last week.
While refinery demand for crude appeared to have fallen and
product stocks remain elevated, the fact that refiners are at least switching
from imports to domestically produced crude would appear bullish for WTI. While
such a situation would mean the opposite for Brent, both grades could at least
take some support from the higher levels of products supplied seen last week,
with gasoline in particular seeing a rise of 310,000 b/d.
How Markets Reacted
The release was mixed this week, and while the headline
number vs consensus was positive, the detailed release showed a variety of
signs that could be interpreted as either positive or negative for each grade. What
appears to be the key info for markets in this current economic environment are
demand signs, and this week we have seen that products supplied have indeed
increased and the demand for WTI in particular has gone up due to lower
imports.
Just before the EIA release at 15:30 GMT, WTI was priced at
around $93.58. As the one-minute graph below shows, in the few minutes after
the release the price increased to around $93.85 before trading sideways for
around 30 minutes and then jumping up almost another $0.50 to $94.30. In total
the maximum gain in the hour after the release was just over 70 cents. The
grade ended the day 80 cents higher than its open of $93.4 at $94.2.
Brent also followed a similar pattern. As the one-minute chart
below shows, the grade was priced around $109.75 before the release, jumped to
$110 within 2 minutes and then looked to be losing almost all of its momentum
before rising up to reach a high of $110.35, a total increase of 60 cents. In
total the grade finished just 10 cents up on the day at $109.7, falling in the
remaining hours of trading.
This week’s release
This week’s EIA release will be the first that provides a
full week of data on inventories after the restart of the Seaway pipeline since
its reversal and capacity expansion, first mentioned in my previous post “TheWTI-Brent Spread”.
This will therefore be an interesting release, and the key details to look out
for will be how much of any refinery input change has come from this increased
flow of US domestic oil versus imports. However, with the price of WTI already
increasing to a large degree this week, it is likely the pipeline has had an
effect on allowing some of the supply glut to be reduced. With this rough idea
in mind, demand signs in the EIA release should continue to have a large impact
on prices.
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