Yesterday crude closed up $2.74/bbl to $45.94, RBOB closed up $0.0629/gal to $ 1.3501 and HO finished up $0.0595/gal to $ 1.4839. The futures market is volatile this morning after yesterday’s rally, bouncing back and forth from negative to positive.
The rally began in the morning and continued after the EIA’s Weekly Petroleum Status Report was released yesterday at 10:30 AM. The EIA statistics show that U.S. crude inventories had a 3.4 million barrel build, however, there was a 785,000 barrel draw in Cushing, OK. Both refined products had a draw; gasoline inventories down 1.2 million barrels, and distillates down 2.9 million barrels. Refinery utilization was up 1.2% from last week to 87.6% of capacity; however PADD I was only up 0.3% while PADD II was up 6.1%. Despite the increase, PADD II is still just at 79.6% of capacity, reflecting heavy turnaround.
When there is a build in crude inventories, it usually results in weaker prices. So what caused the rally? First, although there was a build in crude inventories, there was a significant draw in inventories for Cushing; second, both gasoline and distillate inventories fell despite the refinery utilization increase, which shows healthy demand and exports.
Other news from yesterday is that the Federal Reserve kept interest rates unchanged following its two-day meeting in Washington. However, the Fed might raise rates in its last meeting of the year in December. If rates are increased, the U.S. dollar would strengthen resulting in weak energy prices. Since this has not yet happened, it was interpreted as bullish by the market yesterday.
The market also had some strength on news of Russian strikes in Syria and the PEMEX headline that Mexico will import 75,000 barrels per day (bpd) of U.S. crude. This seems a bit misinterpreted, because if you read the whole story it’s actually a swap of heavy crude for light and the U.S. net effect is zero.