Weekly WTI Crude Oil Inventory Analysis: EIA release of 27st February

Summary of last weeks’ change in Crude Inventories figures:

API: +0.9 mb

EIA Consensus:  +2.5 mb

EIA actual: +1.13mb

Markets perceived this week’s EIA report as positive, with total US crude inventories increasing by 1.4 mb less than expected. In addition to this, a number of key details in the breakdown provided support for WTI prices; both refinery input and end-product demand were positive and US domestic crude production fell slightly.

The Breakdown

While high gasoline stocks and low refinery utilisation are normal for the beginning of the year, the current patterns nevertheless spooked markets to some degree, particularly due to US consumer’s disposable income being cut in the New Year’s payroll tax rise. Fears were somewhat dissipated in this week’s release as the EIA report showed wholesale gasoline demand increased by 160, 000 b/d and refinery utilisation increased by 2.2%pts to 85.1%, with much of the increased production in gasoline.

It was not just demand side signals that were positive; supply details provided some market support 

also, with US crude production falling 22,000 b/d after 4 consecutive weeks of growth. On top of this, inventories at Cushing, the main focus point of the supply glut, fell by 75,000 barrels. Instead much of the increase in inventories came from the Gulf Coast PADD 3 region where stocks increased by 1.1 mb to 174.6 mb; such a build-up is again normal as refiners start stockpiling for spring and summer gasoline production, although this region will be the one to watch in Q2 and Q3 as new pipelines begin to move more and more crude from PADD 2 and Texas (See Seaway No Solution).

How Markets Reacted

Real-time market reaction to the release was insignificant, with WTI remaining in the $92.7-$92.8 range in the hour after the release as the graph below shows. The grade eventually ended up on the day, with further support also coming from positive US economic releases from durable goods orders and pending home sales.  

Next week’s release

If the positive US economic signs remain true, we should see gasoline production and demand both increasing next week. However such results may be hampered by the effects of the US fiscal sequestration, the coverage of which may have led some to cut back on spending, regardless of whether these cuts are prevented or not.