Moving on, the majority of yesterday’s build came from the Gulf of Mexico (PADD 3). This should come as no surprise after the migration from PADD 3 in December due to tax concerns, but the rate at which stocks are returning is troubling. Yesterday’s 5.90 MMbbl build was the week’s largest on record and the cumulative injection over the past two reports comes to 12.77 MMbbls, the highest value on record (as shown below) and almost double the 6.22 MMbbls seen last year.
On the products side, motor gasoline inventories rose by a seasonal 2.40 MMbbls, in line with the 2.30 MMbbl build expected by analysts. Traders were likely more focused on a large 1.36 MMbbl draw in PADD 3, as RBOB prices rallied yesterday to near $2.44 levels.
In fact, the build may have been much smaller if not for a 2.10 MMbbl build on the East Coast (PADD 1). We are not too concerned with PADD 1 as a fundamental demand indicator because heavy disruption took place due to winter weather.
In turn, heating oil inventories fell 1.65 MMbbls in PADD 1 while small builds in the Midwest (PADD 2) and PADD 3 led to a national heating oil draw of 1.56 MMbbls. Diesel stocks rose by a seasonal 1.42 MMbbls while total distillate stocks fell by 0.14 MMbbls, less than the 0.50 MMbbl drop expected by analysts.
Yet NYMEX heating oil prices rallied close to 3.00% yesterday – what gives?
Traders may be focusing on a 1.24 MMbbl draw in PADD 1 and ‘writing off’ a 1.10 MMbbl build in PADD 2. We are hearing reports that pipelines from Canada are congested and over-subscribed, with Enbridge (whose Lakehead system connects Illinois to Canada) stating that several of its lines were oversubscribed by 7% to 23%. Thus the build in PADD 2 may be a function of logistics, not weak demand.
All told the report was bearish for the NYMEX WTI to ICE Brent spread but bullish for the products, and the 321 crack rallied to a high of $18.658 yesterday, its highest point since February 2009. Here at The Schork Report, we maintain our bullish daily bias for WTI; it seems the bulls are more than happy to carry WTI on the back of the products and the Dow Jones breaking the 12,000 mark.
Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.