In the moments following yesterday’s release of the weekly storage report from the DOE, one client asked for our ‘off-the-cuff’ opinion of the DOE report.
Our response… the report looked bearish, in consideration of the previous night’s API report; not to mention seasonal metrics. After all, the DOE’s build in crude oil stocks was twice that reported by the API. More importantly, whereas the API had 143 Mbbls coming out of the NYMEX storage hub, the DOE had 177 Mbbls going in. Furthermore, the API reported a draw in distillate stocks of around 600 Mbbls, while the DOE’s estimate was essentially unchanged.
Even the DOE’s reported draw in gasoline stocks (5.3 MMbbls), while large, still seemed reasonable given that it was one-third fewer barrels than the API’s guess. The bulls however, had to latch on to something from yesterday’s report which would enable them to talk themselves into buying WTI. To this effect, they chose to talk up the “large” draw in gasoline.
Analysts at The Schork Report follow the headlines closely - tensions in Yemen and Israel, plus the meddling by a Nobel Peace Prize Laureate in Libya’s civil war… both could have been construed bullishly. These are legitimate storylines that could have spurred oil higher yesterday. Yet, if that were indeed the case, why did the Brent market, which has a much higher degree of geopolitical-elasticity, close lower?
We suspect the bulls got themselves into a tizzy because of the reported draw in gasoline.
It is understandable. Over the last five weeks gasoline inventories have dropped by 8.9%. Keep in mind, a decrease in stocks at this point in the season is the norm, but an 8.9% decline is well outside of the normal range (1.0% to 4.7%) from the last ten years.
That is a fair point. But we also respect the fact that ending stocks of gasoline finished 2010 at 219.5 MMbbls or 3.8% above the 10-year average. Moreover, despite ample supplies of high-RVP gasoline, inventories through the first six weeks of 2011 grew by 10½%. Normal growth over this timestep is in between 2.7% to 8.1%.
Bottom line, despite a large draw over the last five weeks, gasoline stocks have grown by 0.7% since the start of the year; normal growth through the first 11 reports of the year ranges from -1.4% to +6.2%.
As such, as written in today’s issue of The Schork Report, there is nothing extraordinary about the recent drawdowns of high-RVP gasoline. Therefore, we want to know… what was so bullish about yesterday’s DOE report?
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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.