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Front-end WTI spread in freefall

Published Thursday, February 11th, 2016

You would think that the first drop in US crude oil inventories in five weeks triggered by falling imports would be bullish. It was small but it came against a forecast build of 3.6 million bbls. The initial reaction was a brief rally which petered out very quickly. WTI lost 49 cents/bbl and although Brent gained 52 cents/bbl on the day it fell more than $1/bbl from the day’s high. Whether this rally was short-lived because crude oil stocks are still above the 500 million bbls mark is not entirely clear. Prices might have fallen back due to the unexpected builds in distillate and gasoline stocks. The former grew by 1.3 million bbls against expectations of draw of 1.6 million bbls sending the price of NYMEX Heating Oil 300 points below the high for an unchanged close. Gasoline stocks also built more than the forecast yet NYMEX RBOB settled 436 points higher. This was possibly due to reports that Irvings had to shut down its gasoline making unit at its 300,000 bpd Saint John refinery.

The slight jump of 279,000 bbls in total commercial inventories to a new all-time high of 1.338 billion bbls did nothing to boost the bulls’ morale if there is any left. The 130,000 bpd drop in US product demand is not supportive either but probably the biggest bearish factor in yesterday’s report does not involve flat price but the implications for spreads, namely WTI spreads.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.