In this regard, crude oil supplies have been trending in accord with seasonal metrics since the beginning of the year.
That is to say, crude oil supplies moved higher from January into the spring, dropped through the summer and now appear to be plateauing.
What differentiated this year’s movement was not the pattern, but the depth.
Owing to a historically wide contango in the futures curve in the first quarter, traders were encouraged to build inventories. Indeed, crude oil supplies jumped from 325.8 MMbbls at the end of last year to 370.2 MMbbls in April; an increase of 13.6%.
Today the contango on the NYMEX has narrowed substantially. It still exists, but it no longer pays to carry crude oil forward. Therefore, a good deal of those futures contracts that were sold against inventory in January, February, March and April will not be rolled as they expire in the months ahead. Rather, refiners will likely opt to convert their crude oil stocks into products.
In this vein, as far as the trend is concerned for the fall, crude oil supplies tend to build as refineries shut in for turnarounds. Last week refinery utilization rates took a sharp (136 bp) downturn to 85.6% of capacity and runs fell by 316 Mbbl/d to a four-week low, 14.7 MMbbl/d. However, with the flattening of the curve refiners will look to minimize supply in the fourth quarter when they ramp back up from maintenance. These efforts will come in the form of increased throughput and lower imports.
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.