The Tale of Two Inventory Reports

Thursday, November 2, 2017

Yesterday’s oil trading was the tale of two inventory reports. Late Tuesday afternoon, the API weekly inventory report was released and it showed draws that exceeded expectations across the board. Therefore, prices rose in early trading on Wednesday, hitting their highest level in more than two years. When the EIA weekly stock report came out mid-morning, crude and gasoline declines still exceeded projections, but the magnitude of all draws were substantially less than what API cited. Consequently, the markets ceased to be stunned and prices fell. The EIA data also showed U.S. crude exports surged to an all-time high and American drillers pumped near record levels. The United States exported 2.13 million bpd of crude oil last week, the first time the nation has crossed the 2 million bpd mark.  EIA figures also showed last week’s total U.S. crude production at 9.55 million bpd…not far off the all-time high of 9.61 million bpd.  With exports up and imports lower, a 2.44 million-barrel WTI stock decline (per EIA) is plausible. Lastly, it’s helpful to have perspective on current supply levels. WTI is still closer to the 5-year high than the 5-year average and both gasoline and distillates are essentially right on the 5-year average.

One of the reasons why the WTI price jumped 4.9 percent in October, while Brent topped $60 per barrel for the first time in more than two years, was the bullishness of speculators. Hedge funds and other money managers have boosted their bullish bets on crude by nearly 40 percent since the end of June.  Nonetheless, managers have continued adding to rather than reducing their positions, which strongly suggests many investors see oil prices moving into a new and higher range.

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