[DAILY PETROSPECTIVE] May 12, 2010

Early Evening Market Review for Wednesday

Crude oil prices dropped on Wednesday, with the front month
falling to fresh lows against deferred contracts. Refined
products fared better, and they finished in positive territory, as
traders responded to this week’s DOE report.
In the process of falling, the front-month June crude oil
contract finished near a three-month low, and it ended within
fairly easy striking distance of its now major support at $74.50.
Also evident on Wednesday was a clear divorce from equities,
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which had a very strong day, with the bellwether DJIA gaining 148.65 points to 10,896.91
by the 4 PM final bell. The US dollar was slightly higher against the euro and did not
seem to exert any major influence on oil prices on Wednesday.
This week’s DOE report showed a crude oil build that was larger than expected, a
distillate build that was right in the heart of average
estimates, and a gasoline drawdown that had been DOE Report
anticipated as a build. Refinery utilization declined Crude Stocks up 1.949 mln bbls
1.17% to 88.42%, which is still a little higher than we Distillate up 1.396
have seen at this time of year for the last two years. Gasoline dn 2.814
Utilization dn 1.17% to 88.42%
Crude oil imports, which were down dramatically in
Tuesday night’s API statistics, were down by 264,000
bpd, substantially less than the 1.4 million bpd decline seen in the API numbers.
All factors considered, this was a more bullish than bearish report. Crude oil and
distillate inventories continued to increase, but they had been expected to do exactly
that. Gasoline stocks had also been expected to increase, but they fell significantly,
instead. And refiners pared back on the amount of crude being brought in and cut the
amounts being processed, which should be constructive for refined products supplies.
While the week-on-week consumption numbers dropped, the four-week aggregate
averages improved. This was especially notable in distillate’s four-week demand, which
is now 7.53% higher than the same average a year ago, compared to being up 1.51%
just two weeks ago. Gasoline’s four-week aggregate average is now up 2.65%, where it
was up 3.14% two weeks ago. And total four-week average demand has gained 217,000
bpd in two weeks, and has gone from being up 1.05% (two weeks ago) to being up 2.81%
now. Demand has apparently improved.
Taken all together, these strike us as being positive changes. And that makes
Wednesday’s market response difficult to put fully into context. The figure that caught
the most attention was the build of 800,000 barrels in crude oil stocks at Cushing,
Oklahoma. They are now at a record 37.0 million barrels, and Dow Jones calculates that
there are less than 10 million barrels worth of storage available at that critical hub,
bringing up potential containment issues. The glut at Cushing pushed the differential
between expiring June and second-month July to $4.68 a barrel, well above the cost of
carrying crude and a sign that there is plenty available now.

Crude Oil Daily Technical Chart

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*Note: Full report to be released tomorrow morning*

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