Oil Takes Stock of Crude Realities
Source: Seeking Alpha, Sheraz Mian (6/4/09)
". . .yesterday's inventory report is a crude reminder not to lose sight of the existing oil glut."
The EIA reported a greater-than-expected 2.9 million barrels build in crude oil inventories. Current crude oil stocks are 19.3% above the year-earlier level and remain above the upper limit of the average for this time of the year, as is shown in the chart below from the EIA. The supply cover increased from the previous week to 25.2 days of supply, significantly above the year-earlier level of 20.1 days.
The demand picture also remains very weak. Total refined products supplied over the last four-week period, a proxy for overall petroleum demand, was down 7.7% from the year-earlier period, with gasoline down 0.4%, distillates (includes diesel) down 8.8%, and jet fuel down 11.7%.
So while the future may be better than the present, yesterday's inventory report is a crude reminder not to lose sight of the existing oil glut.
We continue to believe that there are good fundamental underpinnings for the ongoing oil rally. Having said that, it would be useful for the budding economic recovery as well as the sustainability of the rally if the commodity can pause for some time to consolidate recent gains. Yesterday's inventory report and potentially weak payroll numbers on Friday will do just that, in our view.