Stephen Schork
Editor of
"The Schork Report"

We are now entrenched in the peak U.S. driving season. This morning’s DOE report covers the week ended July 17th. After today there will be seven more reports remaining in the season, i.e. the end is nigh.

As we outlined in last week’s issues of the Schork Report, consumer demand, as measured by the retail sales figures, continues to lag. With regard to the extant draw in crude oil, the term structure of the NYMEX WTI complex continues to move out. Mind you, supplies in the U.S. are still plentiful. After stagnating through the spring and early summer, supplies at the NYMEX delivery hub in Cushing, OK are once again on the rise. Over the last three weeks inventories have increased by 2.7 MMbbls or 9.1%. The move corresponds with a re-steepening of the NYMEX curve since the end of June.

For example, assuming your cost (tankage, insurance…) is a $1 a barrel, then you could have purchased August WTI on the close of Monday’s penultimate session, been able to take delivery of those barrels this Saturday and the contango in the market would have afforded you the ability to carry that inventory until next March.

• Oil Near $65 as US Crude Stocks Slip

In other words, the market is paying you to build supplies by virtue of the discount on nearby material. If the recent run-up in price was based on real demand for wet barrels, then this discount would disappear, i.e. the market would be moving from contango toward backwardation. That is not the case at this time.

Thus, the ongoing drawdown in U.S. crude oil supplies (outside of Cushing) is not demand driven, but rather a function of lower domestic production and fewer imports. In other words, refiners, as any good grocer would tell you, are aggressively emptying the shelves, as it were, of surplus material.

Thus, what is so bullish about the current string of crude oil draws in the U.S.? Analysts at The Schork Report sum it up succinctly: Not much.

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Stephen Schork is the Editor of, "The Schork Report" and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.