The petroleum complex failed to sustain early strength following the sharp losses yesterday. The appearance that Iranian and US tensions had eased appeared to limit strong buying interest. Nevertheless doubts remain over the status of the sanctions and whether any progress had been made. Caution was also evident ahead of the DOE report with a smaller than expected draw in crude oil inventories as reported by the API setting the stage for some disappointment.
The DOE report showed Crude Oil inventories had fallen by 3.1 mb slightly above forecasts. Stocks at Cushing fell by 1.4 mb while exports were 2.5 mb compared to 3.0 mb in the prior week. Product stocks continued to build with Gasoline stocks increasing by 3.6 mb compared to forecasts for a draw of 1.5 mb while distillate stocks built by 5.7 mb compared to expectations for a build of .6 mb. The larger than expected build in product inventories appeared to support a bearish reaction to the report following its release. The large build in overall stocks which totaled 1315 mb compared to stocks of 1303m mb last week and 1206 mb a year ago suggests an adequate supply situation at a time when gasoline, and distillate disappearance shows sluggish growth which is below year ago levels.
Surprisingly neither the RBOB nor the ULSD showed a strong reaction in the cracks. Recent support in ULSD relative to crude likely reflects the move to build up inventories into the end of the year ahead of new regulations mandating the use of less efficient diesel on ships in 2020 rather than bunker fuel. This should attract better support to the Oct ULSD Crack near current levels near 23.00.
The crude markets failure to maintain value above the 100 day at 59.68 and at 59.06 on the two hundred day average should be seen as a failure technically and suggests the market is more concerned with the appearance that supplies are in surplus despite the intended and unintended cutbacks within OPEC.
The market traded cautiously in advance of the EIA report tomorrow. Expectations for the EIA report Thursday point to an injection of 65 bcf compared to 46 bcf last year and 63 bcf for the five year average. Forecasts that temperatures will moderate next week helped keep buying interest subdued. Nevertheless cooling demand should still be high helping moderate stock injections over the next few weeks.
Charts Courtesy of DTN Prophet X
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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