Inventories took solid command of the market on Wednesday, however, from a bearish perspective. The report showed a huge build in crude oil, an above expected build in gasoline and a surprise build in distillate even as refinery runs declined to below 85% utilization level.
As the following tables shows crude oil stocks are now back above the 300 million barrel level while gasoline is above last year’s record setting level. As compared to the 5 year average everything except refinery runs are above this so called comfort level.
Overall we rate this week’s oil report as solidly bearish, especially for gasoline. The last time gasoline inventories were this high at this time of the year was 1994.
| Oil Inventory | | 2/7/08 | | |
| Mil of Bbls | | | | |
| | Current | Change from | Change from | Change from |
| | Inventories | Last Week | Last Year | 5 Year |
| | | vs. Actuals | | |
| Crude Oil | 300.0 | 7.1 | (24.5) | 2.9 |
| Gasoline | 227.5 | 3.6 | 0.3 | 11.0 |
| Distillate | 127.1 | 0.1 | (9.2) | 2.3 |
| Refinery % | 84.3% | -0.7% | -3.0% | -3.0% |
Absent any other drivers the oil complex should have been pushed lower than it was on Wednesday and should still be trading lower as I write this report. However, a report that Shell has declared force majeure from the Bonny Light facility is temporarily keeping a bit of a floor on prices. We do not think this will ultimately be enough to stop prices from falling to the medium term support areas shown in the table at the end of the report.
We have been bearish to the market and indicating that prices will be on the defensive throughout most of this year. So far noting has occurred that changes our opinion as we believe lower prices are still justified and will likely happen before we see another attempt to move back toward the triple digit price level for WTI. The fundamentals are continuing to move into a bearish pattern for prices while the US economy is still indicating further weakness as we move deeper into 2008. Oil demand growth is likely to come in lower than the projections for 2008, helping to grow inventories.
As we have also been warning watch out for sudden reversals as the market is a bit oversold at this point. Currently prices are quietly steady in overnight trading.
| Current Expected Trading Range | | | ||
| | 2/7/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 5:35 AM | Yesterday | | |
| Mar WTI | $87.22 | $0.08 | $92.50 | $85.25 |
| Mar HO | $2.4234 | $0.0046 | $2.5600 | $2.4000 |
| Mar RBOB | $2.2421 | $0.0022 | $2.3600 | $2.2000 |
| Mar NG | $8.075 | $0.081 | $8.250 | $7.500 |
| | | | | |
Dominick A. Chirichella
Energy Management Institute
tel 646.202.1433
fax 801.383.7510
dchirichella@emimail.org
www.energyinstitution.org
www.advancedenergycommerce.com
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