Crude oil prices are moving higher following two reports that showed larger than expected inventory draws in crude oil. While distillate draws were in line with expectations, the counter seasonal draws in petroleum inventories, is helping the entire crude oil trading complex gain a foot hold. Shale producers are filling the void left by OPEC, and should cap rallies as they approach levels near 60 per barrel on a WTI basis.
The first of the two reports, the API Inventory report, shows a much larger than expected draw in crude oil inventories. The American Petroleum Institute reported that crude oil stock piles fell by 3.8 million barrels compared to the 2.4-million-barrel build expected. Cushing Oklahoma, WTI is priced, saw a large 1.99-million-barrel draw, while distillate stocks also declined substantially by 2.4 million barrels.
The EIA reported that U.S. crude oil imports averaged 6.9 million barrels per day last week, down by 954,000 barrels per day from the previous week. Although some of this loss was offset by increasing production, it did not make up for the large decline in imports. With OPEC promising a cap, this the U.S. could continue to see a declining trajectory of total inventories.
The Department of Energy reported that U.S. commercial crude oil inventories decreased by 5.2 million barrels from the previous week. Expectations were for an increase in crude oil inventories by approximately 2.4 million barrels. At 468.7 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year.
Gasoline inventories increased by 2.5 million barrels last week, in line with expectations. Distillate fuel inventories decreased by 1.2 million barrels last week which is also in line with expectations. Total commercial petroleum inventories decreased by 3.6 million barrels last week.
The EIA reported that U.S. crude oil refinery inputs averaged about 15.4 million barrels per day during the week ending October 14, 2016, 182,000 barrels per day less than the previous week’s average. Refineries operated at 85.0% of their operable capacity last week.
Demand continues to remain robust, as distillates begin to gain traction. The DOE reported that total products demand over the last four-week period averaged about 20.1 million barrels per day, up by 3.6% from the same period last year. Gasoline demand averaged 9.1 million barrels per day, up by 0.2% from the same period last year. Distillate fuel demand averaged about 4.0 million barrels per day over the last four weeks, up by 3.3% from the same period last year. Jet fuel demand is up 6.5% compared to the same four-week period last year.
Crude oil prices appear to be breaking out as prices test the June highs. Target resistance on a close above 51.65 would be 53.40. Momentum is positive as the MACD (moving average convergence divergence) index prints in the black after recently generating a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.