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US stock draws outweigh OPEC – for now

Published Friday, June 3rd, 2016

The OPEC communique was released just before 3 p.m. London time but the news of unchanged policy had filtered through an hour earlier. Between 2 p.m. and the release of the weekly EIA statistics front-month, Brent dropped $1/bbl implying that the market was disappointed with OPEC’s decision. After the US inventory data was published the trend reversed and selling seen in the early afternoon dried up, fresh buying appeared and by the close the afternoon losses disappeared and the five main futures contracts closed higher. WTI gained 16 cents/bbl and closed $1.20/bbl above the low. Brent settled 32 cents/bbl higher and over the $50/bbl level for the first time since last November. Heating Oil rallied 99 points and RBOB 193 points on the day.

In a way the late rally is understandable as US total commercial stocks fell by 2.8 million bbls. It was the fourth consecutive weekly drop which took inventories 5.7 million bbls below the all-time high of 1.371 billion bbls achieved a month ago although current commercial stock levels are still 9% higher than a year ago. The latest drop in total US stocks was a combination of draws across the main categories – crude, distillate and gasoline.

Crude oil inventories fell 1.37 million bbls. It was less than anticipated but if you consider that PADD1-4 drew 2.4 million bbls the figure looks rather bullish all of the sudden. The afternoon buying was also aided by the 704,000 bbl drop in Cushing stock levels. Despite the second consecutive weekly fall at the NYMEX delivery point crude oil inventories are only 1.3 million bbls below the all-time high and for this reason it is not surprising to see the front-end WTI spread staying relatively unchanged. Another bullish data on the crude front is the domestic production figure which fell by 30,000 bpd week-on-week and is now at 8.735 mbpd. Domestic output has averaged at 9.028 mbpd this year so far, down from 9.331 mbpd during the same period last year.

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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.