Wednesday, April 9. 2008
US Oil Inventories
Today's US oil inventory statistics were unquestionably bullish across-the-board. Crude oil inventories tumbled by 3.2 million barrels against expectations for a 2.3 million barrel rise. Gasoline inventories were expected to fall by about 3 million barrels but actually fell by 3.4 million barrels.
And finally, distillate inventories fell by 3.7 million barrels against expectations for a 1.5 million barrel decline. Thus, whether we look at the crude oil report or the product inventories, today's inventory release from the EIA is bullish for crude oil prices.
Digging a bit deeper into the report a few more key trends are obvious. First, gasoline demand is actually slightly higher over the past four weeks compared to the same four weeks one year ago. Jet fuel demand is slightly lower and distillate demand is flattish. This hardly suggests that we're seeing much demand destruction due to a weakening US economy and sky-high oil prices.
Meanwhile, refineries are still operating at just 83.0 percent of their capacity. This suggests refiners are contining to respond to still-bloated gasoline inventories by cutting output.
The inventory picture has been uniformly bearish this year. Nonetheless, oil prices have continued to rise, mainly due to weakness in the US dollar. That said, I am beginning to wonder if we're seeing a turn in the inventory stats.
It appears that OPEC is well aware that US gasoline inventories are bloated and crude oil supplies are healthy. Supplies are particularly healthy when you consider that a weak economy likely means subdued growth in fuel demand. OPEC seems to be more concerned with targeting supplies rather than the price of crude. Certainly, we are seeing reduced US oil imports--down nearly 1 million barrels per day over the past four weeks compared to the same 4 weeks one year ago.
This, in my opinion, opens up a real probability of an oil super-spike over the next few months. Specifically, if oil can rally when the inventory picture is bearish, imagine what could happen if the inventory picture continues to normalize.
That said, from a stock market investor's standpoint, the natural gas market remains more interesting. This week, consensus expectations are for a 15 billion cubic foot draw from storage. Normally, we would expect to see injections at this time of the year because winter heating season is drawing to a close. I would not be at all surprised to see gas inventories drop to below-average levels in tomorrow's release.
Traders will also be watching the Independence platform in the Gulf. That platform has been shut-in to investigate a possible leak. Since Independence handles some 900 million to 1 billion cubic feet of deepwater production per day, this could put further downward pressure on inventories.
I'll be back tomorrow with a post after that 10:30 release.
Here are today's inventory charts:
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