Market Report: Does Supply Matter?

A flood of crude and gas weighed on oil as other commodities seemed to want to go higher. Does supply matter anymore? That was the question I heard more than any other as some were disappointed that we did not see a bigger bearish reaction to yesterday's Department of Energy weekly supply report as provided by their Energy Information Agency division. The EIA not only reported that oil demand hit the lowest level since December, as we are in the heart of shoulder season, but that crude oil inventories surged ahead by 1.9 million barrels last week. That bearish build, based upon market expectations, put supply at 355.9 million barrels which is still well above the five year average. Supplies in the NYMEX delivery point in Cushing are also rising.

Now if that wasn't bearish enough for you, how about gasoline stocks increasing by 3.6 million barrels last week? Gasoline production gasoline output hit 9.396 million barrels per day the highest level since Oct 2 and according to Dow Jones the highest production level in the month of April since 1982. Or perhaps the fact that distillate fuel inventories rose by 2.1 million barrels. Or what about the fact that total commercial petroleum inventories increased by 10.7 million barrels last week, and are above the upper limit of the average range for this time of year. Why oh why were we not much lower after this bearish cornucopia of data?

Well there were a couple of reasons. Last week, we saw a mysterious drop in imports into the East Coast. Well guess what happened this week? You guessed it. A mysterious surge in East Coast imports. Ok, maybe not so mysterious. It looks like the EIA played catch up this week. The EIA reported that over all US crude oil imports averaged 9.6 million barrels per day last week, up 733 thousand barrels per day or a whopping 8.3% from the previous week. That put imports at the highest level since last September with the biggest increase of 355,000 barrels per day coming on the East Coast. Imagine that! It seems we got two weeks of imports wrapped up into one which may have lightened up some of the bearish impact.

Over the last four weeks, crude oil imports have averaged 9.3 million barrels per day, 29,000 barrels per day above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 756 thousand barrels per day. Distillate fuel imports averaged 106 thousand barrels per day last week.

The other reason was the usual suspect, China. Reports of double digit demand growth numbers for oil seemed to make some want to forget about those glutinous US supplies. The IMF also raised China’s economic growth forecast. Still at the same time China is not using all the oil that they are importing. Their supplies are rising as well. Dow Jones reports that China's commercial crude oil stockpiles rose 1.2% on month in March to 28.54 million metric tons or around 209.2 million barrels, Xinhua news agency's OGP newsletter reported Thursday. Xinhua noted the figure excluded crude oil held in China's strategic oil reserves. The Chinese government doesn't officially publish data on its crude oil stocks. The Xinhua report cited data from its Xinhua 08 financial information platform. The nation's gasoline stocks fell 2% last month to 6.25 million tons, while diesel inventories dropped 8.2% to 10.58 million tons, Xinhua said. That was as farmers in China took to the fields.

Oil supplies are building, and the outside supports that have been driving oil is making it harder for oil to drive higher.