Summary of last
weeks’ change in Crude Inventories figures:
API: +3.6 mb
EIA Consensus: +3 mb
(Platts)
EIA actual: +2.6 mb
A fall in inventories at Cushing was the highlight of this week’s
EIA report, with stocks falling by 315,000 barrels at the Oklahoma terminal.
Despite rising crude stocks nationwide and a report that contained a number of
negative factors, crude was nevertheless mainly buoyed by this positive regional
highlight and both WTI and Brent prices increased in the hours after the
release.
The Breakdown
Refinery activity remained subdued last week, with
utilisation rates falling -0.8%pts to 84.2% and gross crude inputs decreasing
by -132,000 b/d. While utilisation rates are typically low this time of year
due to seasonal maintenance, the numbers are nevertheless negative for
short-term crude demand.
Total petroleum products supplied to the market saw a large
fall of 629,000 b/d (-3.4%), but this was mostly attributed to propane and “other
oils” (see EIA
for definitions). The more commonly followed gasoline, which accounts for
approximately 47% of total petroleum products supplied, saw a more modest
decrease of -86,000 b/d (-1%), although this nevertheless was bad news
considering the current large stocks of gasoline held. Indeed, inventories of
gasoline increased by a further 1.738 mb last week, with the decreasing trend
in stocks from the previous two weeks unable to be maintained.
Some respite came from a decrease in imports by 499,000 b/d
in conjunction with another week in which US crude production remained fairly
stable, increasing by just 4,000 b/d. The most positive sign for US crude
prices came from stocks at Cushing, which declined by 315,000 barrels to reach
a one-month low. This was despite news last week that the Seaway pipeline from
Cushing to Texas had not been operating at full capacity due to bottlenecks in
the system. Media reports that this drop in inventories could therefore have
been due to buyers now using rail to transport crude, and companies such as PBF
Energy have been increasing rail capacity at its refineries, as reported by Bloomberg.
How Markets Reacted
Both grades were on slightly negative trajectories in the
short period up to the EIA release, with WTI facing a steeper downward trend
then Brent in anticipation of further increases in inventories. Although such
an increase did materialise, the fact that stocks at Cushing actually fell last
week demonstrated that the negative market reaction to last week’s news Seaway
pipeline capacity news may have been too strong, and WTI in particular
rebounded.
The April contract for WTI was priced around $92.10 around
15:30 on Wednesday, and after the release began an upwards trend that resulted
in an increase of about $0.70 in the following half an hour, with the grade
reaching $97.30 before it started to retrace as traders took profits.
Brent struggled to trade convincingly in either direction in
the first 10 minutes after the release, but soon began an upward trend in line
with WTI. In total the grade managed a gain of around $1 before also retracing
around 17:00 GMT.
Next week’s release
In previous weeks we have seen demand side signals from
products supplied and refinery inputs overshadow large build-ups in inventories,
with much of the inventory build-up deemed to be down to seasonal factors. Following
this logic we may have expected a fall in oil this week as product demand and
refinery input declined, but instead market sentiment seemed to be focused on
signs that inventories at Cushing had decreased to a one month low. Having said
this, US equities were also experiencing a positive day which may have
explained some of the gain in oil. The key therefore to look out next week will
be how inventories at Cushing have developed now rail is beginning to play a
key factor, and if overwhelming supply can
once again be overshadowed by positive signs that this supply is at
least making it to customers.
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