4.1-Million-Barrel Oil Buildup Surprises Industry, Street

Real-time Monetary Inflation (last 12 months): 2.2%

This week, the oil industry and Oil Patch watchers were all on the same side with their inventory guesses, but to vastly different degrees.

The American Petroleum Institute estimated crude stocks would rise by 2.7 million barrels, while sell-side analysts looked for a build between 1.3 million and 1.4 million barrels. Both groups vastly underestimated the size of the supply backup. The U.S. Energy Department announced this morning that crude inventories actually rose by 4.1 million barrels.

The API's and analysts' forecasts for gasoline ended up straddling the 700,000-barrel build reported by the government. The API looked for a 909,000-barrel increase, while analysts estimated a 300,000- to 600,000-barrel gain.

The Street was on-target with its call for a 900,000- to 1-million-barrel drawdown in distillate fuel supplies. Actual inventories decreased by 900,000 barrels, according to the Energy Department. The API predicted a 4.1-million-barrel decrease.

Refineries, according to the Energy Department, operated at 81.9 percent of capacity last week, a 0.7-percentage point step-up from the previous week. Gasoline demand, reported by the government, averaged 8.8 million barrels per day, up by 0.1 percent from year-ago levels, while average daily distillate fuel demand, at 3.7 million barrels, is off 4.8 percent.

This Week's Trading

Overnight, crude oil prices extended the day session's gains. Tuesday's market action capped a give-and-take week. Crude rose 0.8 percent, while gasoline ticked 0.3 percent higher and heating oil inched up 0.1 percent as refiners continued to maximize springtime runs. Gross margins for gasoline-rich 3-2-1 refining operations ratcheted up to 13.7 percent, bringing the premium earned on a springtime mix up 13 basis points versus a distillate-heavy 2-1-1 setup.

NYMEX-Implied Refining Margins

West Texas Intermediate crude's premium to heavier North Sea Brent was virtually unchanged this week at $2.59 a barrel.

Crude oil's contango shrunk modestly this week. The three-month NYMEX roll came in 6 cents to $1.12 a barrel. Annualized carry costs rose to 6.2 percent.

Nearby April crude oil has now retraced 62 percent of its January-February price swoon, as bulls eye a challenge of the $82 level. A fairly strong bid developed under $79 Tuesday, but sellers were aggressive at $81.

Technically, the intermediate term is bullish, but momentum in the shorter term has weakened. Today's action will likely determine the market's short-term impetus.