The EIA reported oil stock figures yesterday, which we believed were slightly negative on balance. Energy markets
initially weakened following their release, but were able to reverse and advance toward the overnight highs shortly
afterward. At first glance, the numbers seem unimposing, as oil stocks were above estimates while gasoline and
distillates were below. Both could be explained away by factors such as higher imports helping oil stocks and lower
refinery utilization pressuring products. However, the bottom line is that demand is still weak and really isn’t even
close to the poor levels seen during last year’s demand weakness. That may be the bottom line of the report and will
impact future refinery utilization levels, import intentions, and in the end, prices. The increased number of variables
will make predicting oil prices akin to pushing a piece of cooked spaghetti in a straight line.
The reaction of the oil industry to these poor fundamentals has recently been to decrease imports and lower
utilization. The result on markets has been to narrow the crude oil contango and boost refinery margins. MFGR was
bearish on gasoline last fall on the belief that the negative seasonal pattern would play into a market that is heavily
oversupplied. The position didn’t work though, because of these refiner reactions, which created ‘perceived tightness’
in the market. That may suggest that the weak demand condition will have less impact on prices going forward.
Market Estimate 121 BCF withdrawal, MF Global Estimate 116 BCF withdrawal – Five-Year Average 171 BCF withdrawal
The DOE reports crude oil stocks up 2.317 MB, distillate stocks down 948,000 bbls and gasoline stocks down 1.306 MB
- API reported a build of 4.723 million barrels, in contrast to analysts’ expectations of a draw. Crude oil refinery inputs rose by 79 MB/D to average 13.789 MMB/D last week, while gross imports recovered by 322 MB/D and averaged 8.417 MMB/D. The overall arithmetic would imply a stock build of roughly 1.8 million barrels, and thus once again the API crude oil stats were quite irreconcilable. Our numbers, as discussed the other day, however, would in fact suggest a modest build instead of a draw, and we will see what the DOE numbers have in store for the market in this regard. For distillate, the API reported a stock draw of 1.022 million barrels to 159.795 million barrels, somewhat less than market expectations, with the draw concentrated in diesel fuel. Refinery output of total distillate fell by 102 MB/D to 3.553 MMB/D, while gross imports rose by 82 MB/D to 392 MB/D. Implied demand on an API basis dropped to average only 3.3 MMB/D, and we believe the DOE numbers will show somewhat stronger implied demand for last week. In addition, as previously discussed we would look for imports to have declined on a DOE basis after surging above trend the week before. Finally, the API reported that primary gasoline stocks declined by 1.159 million barrels to 227.297 million barrels, while analysts had been looking for a build. Implied demand rose by 251 MB/D to 8.882 MMB/D, refinery output eased by 15 MB/D to an average of 8.906 MMB/D, while imports remained about even with the prior week.
