Over the last twelve months ended May 2010 (the latest date for which monthly data is available) the DoE reports that total commercial crude oil stocks have dropped by 1.13 MMbbls. That is 40% below what we would have expected based on a seasonally adjusted time series. This is likely the residue of poor demand fundamentals, which has resulted in a persistent contango along the Nymex crude oil curve.
Per preliminary data for June, we saw a 4.74 MMbbl build in stocks as opposed to an expected drawdown of 5.46 MMbbls. This event is explained by the second graph in the Chart of the Day in today’s (Wednesday's) issue of The Schork Reportwhere we illustrate the steep discount (contango) on spot crude oil in May on the Nymex relative to the second month.
At one point (May 12th) the June 2010 contract closed at a $4.59 (!) discount to the July. In fact, on average the spot June contract traded at a $2.89 discount.
As such, the market had tremendous incentive to build storage in June and then turn around and draw it down to deliver it against the July contract one month hence. To wit, preliminary data shows a 5.14 MMbbl draw in July against an expected draw of 3.67 MMbbls.