Another Weekly Oil Buildup—Eight Weeks Straight

Real-time Monetary Inflation (last 12 months): 2.0%

U.S. commercial crude oil inventories increased by a million barrels, the eighth consecutive weekly buildup reported by the U.S. Energy Department. The industry-supported American Petroleum Institute had forecast a 403,000-barrel addition, while sell-side analysts had eyed gains ranging from 400,000 to 1.1 million barrels.

The API's estimate of a 3.7-million-barrel drawdown in gasoline stocks proved to be too aggressive, while the Street's predictions, ranging from flat to down 800,000 barrels, were too conservative. Actual motor fuel inventories, according to the Energy Department, fell by 1.7 million barrels.

The government also reported that supplies of distillate fuels, including heating oil and diesel, dropped by 1.5 million barrels. The API was looking for a 756,000-barrel decline versus analysts' guesstimates of an 800,000- to 1.0-million-barrel draw.

Refineries operated at 80.6 percent of operable capacity, down a tenth of a percentage point from the previous week and three-tenths of a point less than analysts' expectations. For its part, the API had estimated refinery utilization would rise to 81.3 percent.

Daily gasoline production averaged 9.0 million barrels last week, while 3.8 million barrels of distillate fuels were pumped out on an average day.

Government figures show gasoline demand at an average 8.9 million barrels per day, up 1.3 percent from the same period last year. Distillate fuel demand is now at 3.7 million barrels per day, off 3.1 percent from year-ago levels.

Crude stocks at the Cushing, Okla., delivery point for the NYMEX oil contract fell 700,000 barrels to levels not seen for a month.

 

The Trading Week

On Tuesday, NYMEX nearby crude jumped 2.4 percent higher, following reports of an OPEC decision to maintain its present production limits and news of the U.S. Federal Reserve's intent to keep interest rates low for an "extended period."

For the week, oil prices ticked up 0.3 percent, while gasoline prices inched 0.5 percent higher. Heating oil's jump of 1.1 percent narrowed the premium of gasoline-rich 3-2-1 refining runs over distillate-heavy 2-1-1 mixes.

Lighter, sweeter West Texas Intermediate's price differential over North Sea Brent shrank 48 cents a barrel this week to $2.02.

There was shrinkage, too, in the NYMEX three-month roll. Yesterday, the contango shrank below $1 a barrel. The spread has contracted 25 cents a barrel this week as the annualized cost of carry increased to 6.8 percent.

Trading volume for NYMEX crude oil rose 0.6 percent this week to a daily average of 652,700 contracts; open interest jumped 1.4 percent to 1.387 million contracts.

 

Nearby NYMEX Crude Oil

 

Tuesday's OPEC announcement kept a bid under $80 in the nearby April NYMEX crude contract. Price action is likely to remain positive in the near term as long as contracts trade above April's moving average of $81.39. The next upside objective is last week's reaction high at the $83 level. Intermediate support now rests at $78.43.