FxWirePro: EIA’s inventories upbeats consensus, report appears to be moderately bearish for crude, bullish for gasoline

This week’s EIA (Energy Information Adminstration) report has been bearish for crude and bullish for gasoline and distillate. Overall, this report was bullish compared to the previous two reports; total commercial crude and product stocks drew by 6.6 Mb for the week ending 15 Sept., compared to a combined 8.8 Mb build in the weeks ending 1 Sept. and 8 Sept. The oil situation began to recover and normalize from the storms.

Total product demand gained 729 kb/d WoW, while 4w av. demand increased 108 kb/d YoY to 20.39 Mb/d (+0.5% YoY). Product exports, crude imports, and crude runs all gained sharply compared to the previous week; crude exports and crude production gained more moderately, but were fully back to normal.

The front-month NYMEX WTI - ICE Brent differential is currently trading at an extremely wide $5.50/bbl; before Harvey, it was around $3/bbl. The WTI weakness (it is in contango) reflects sharply lower US crude runs, crude stocks that are high and building, and growing crude output that was relatively unscathed.

Crude built 4.6 Mb (vs. +3.9 Mb consensus) to 472.8 Mb. Over the past 3 weeks, crude stocks have built 15.1 Mb or 717 kb/d. This week's build occurred despite combined runs (+1.09 Mb/d) and exports (+154 kb/d) increasing more than total supply from imports (+888 kb/d) and production (+157 kb/d). Crude runs increased to 15.17 Mb/d, as USGC refineries continued to ramp up/restart. Both imports and exports increased; ports and waterways along the Gulf Coast were open, but some restrictions remained. The key phrase for the week is "getting back to normal". Both crude output and exports have fully recovered; crude runs and imports both showed large gains and are on the road to recovery.

Gasoline stocks drew by 2.1 Mb, which was in line with consensus. Total gasoline stocks are now just above the 5y av. at 216.2 Mb. Stocks fell the most in PADD 3 (-2.4 Mb) and in PADD 1 (-1.4 Mb), where stocks are now slightly below the 5y av. at 53.4 Mb. Despite a 178 kb/d drop in demand and a 36 kb/d increase in supply (led by imports, which gained 131 kb/d), stocks drew anyway. Demand may have been reduced on the Gulf Coast, due to the aftermath of Harvey; however, this may have been partly offset by strong demand in Florida and other southeastern states, due to evacuations ahead of Irma. 4w av. demand was down 23 kb/d YoY to 9.52 Mb/d (-0.2% YoY).

Today, the energy markets trimmed recent gains, weighing down by rising crude inventories and production in the United States as well as a stronger dollar, which potentially hampers fuel consumption in countries that use other currencies at home.

Well, contemplating momentary rallies, it is advisable to initiate Credit Put Spread (CPS) in order to tackle both short term upswings and major downtrend, the execution can be done by ITM shorts, while, ATM longs.

Alternatively, we uphold our previous recommendation of shorts in WTI crude using mid-month tenors as the underlying price of this energy commodity may slide again upto 47.09 levels (next strong support), or even upto 45.37 levels upon breach below 1st target, maintain strict stop at $52.05 levels. Courtesy: SG