Analysis of U.S. EIA data

New York - March 3, 2010

U.S. crude oil inventories climbed 4.034 million barrels to 341.571 million barrels the week ending February 26, as crude imports rose while refinery inputs edged lower, data released by the U.S. Energy Information Administration (EIA) showed Wednesday.

The build looked bearish for New York Mercantile Exchange (NYMEX) crude futures prices, considering that analysts had been expecting a more modest 1.1-million-barrel build. But 2.3 million barrels of the build occurred on the largely disconnected U.S. West Coast (PADD V). Midwest (PADD II) inventories climbed 532,000 barrels to 81.427 million barrels, while Gulf Coast (PADD III) inventories were up 1.754 million barrels at 181.824 million barrels.

U.S. crude imports rose 152,000 barrels per day (b/d) to 9.236 million b/d last week. Imports have been ramping up steadily for the most part from the 7.867 million b/d figure seen the week ending January 22. Some analysts have attributed the rise to an unloading of crude from floating storage, the result of a narrowing NYMEX crude contango*. The April/May oil futures price spread settled at minus 38 cents per barrel (/b) on Tuesday, compared to minus 61 cents/b on February 1.

The spread has narrowed as inventories at Cushing, Oklahoma -- home of the NYMEX crude oil futures contract delivery point -- have tightened. Cushing inventories were at 29.969 million barrels the week ending February 26, up 67,000 barrels on the week, but down from 35.67 million barrels the beginning of January.

Crude inputs fell slightly last week to 14.074 million b/d from 14.107 million b/d, the EIA data showed. The U.S. crude inventory build caused the surplus above the five-year average to widen to 19.99 million barrels from 15.02 million barrels the prior week.

U.S. Gulf Coast inventories have been on a steady uptrend since the week ending December 18, rising 26.06 million barrels on low refinery demand and steady imports. The Gulf Coast inventory rise fits within seasonal patterns, but this year's increase is more dramatic. The surplus against the five-year average has grown to 10.549 million barrels from 663,600 barrels the week ending January 22.

U.S. distillate inventories fell 843,000 barrels to 151.821 million barrels last week, the EIA data showed. This was in-line with market expectations, as analyst were looking for a 975,000 barrel draw, and should therefore be seen as neutral for NYMEX heating oil futures prices.

However, the bulls latched onto a 4.074 million barrel distillate inventory draw reported by the American Petroleum Institute (API) Tuesday evening, driving heating oil prices higher. Gains were also attributed to increased demand in Chile following the weekend earthquake.

The bulls also were likely fixated on a 167,000 b/d rise in U.S. distillate demand to 3.829 million b/d. That put demand slightly higher on the year, although still well below the five-year average of 4.241 million b/d.

U.S. distillate production rose to 3.812 million b/d from 3.591 million b/d, while imports fell to 354,000 b/d from 444,000 b/d.

Atlantic Coast (PADD I) heating oil inventories climbed 147,000 barrels to 34.293 million barrels, putting stocks 7.063 million barrels above the five-year average. That's up from a 645,000 barrel surplus the week ending January 22, and is a bearish consideration for the New York-based heating oil futures contract.

U.S. gasoline inventories climbed 773,000 barrels to 231.943 million barrels. Production rose 435,000 b/d to 8.863 million b/d, while imports fell 71,000 b/d to 775,000 b/d. Gasoline demand fell 182,000 b/d to 8.882 million b/d, but that was off an unusually high number the prior week.

While the demand figure may not be seen as bullish, falling below both the prior year and the five-year average, it was likely not bearish enough to deter the recent uptrend seen in NYMEX RBOB futures.

*Contango is the industry vernacular for the condition whereby prices for nearby delivery are lower than prices for future-month delivery.

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