Nothing like a bullish inventory report (versus an expected bearish report) to stoke the fires of a very bullish market. Yesterday’s surprise decline in crude oil stocks brought the bulls out in full force as more long side buying besieged the energy complex once again. So far this week we have made new highs every day with another new historical high already hit in overnight trading as the market breached the $135/bbl level.
As shown on the following table this week’s report was viewed as bullish based on the surprise decline in crude oil. Both gasoline and distillate came in within the expectations. The large crude decline although viewed as bullish needs to be tempered a bit since it is partially a result of the much larger than expected build in refinery runs. An increase in refinery runs will result in additional refined products being produced over the next few weeks. So a supply problem is not in the cards, in fact the market is more likely to function very normally as we start the summer driving season in the US.
| Oil Inventory | | 5/22/08 | | |
| Mil of Bbls | | | | |
| | Current | Change from | Change from | Change from |
| | Inv. | Last Week | Last Year | 5 Year |
| | | | | |
| Crude Oil | 320.4 | (5.3) | (23.7) | (0.8) |
| Gasoline | 209.4 | (0.8) | 12.7 | 3.0 |
| Distillate | 107.8 | 0.7 | (12.5) | (2.8) |
| Refinery % | 87.9% | 1.3% | -3.2% | -3.2% |
As we have said all week the market is just not ready to enter a corrective mode. The dollar is still range bound and hovering near its low end while more and more participants become convinced that a supply problem is imminent. The result has been new historical highs everyday this week with the Goldman Sacs projection of $150 to $200/bbl oil becoming more and more possible sooner than later. However, the market still remains driven (to astronomical levels) based on the anticipation of an event that will cause major supply problems rather than the event occurring. Historically most all surges in oil prices have been associated with event already happening…Katrina/Rita, embargo, Iranian revolution, etc. We have been in a tremendously strong uptrend and basically noting has happened during the life of the uptrend and the likelihood of any supply shortfalls in the short or medium term is very unlikely.
We do not expect the market to retrace much as we head into a long holiday weekend.
Currently prices are firm and making new highs with the dollar basically unchanged.
Dominick A. Chirichella
Energy Management Institute
tel 646-202-1433
tel 845.368.3904
fax 801.383.7510
www.advancedenergycommerce.com
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