Here’s a shocker: gasoline stocks fell much more than expected last week , with a corresponding smaller than expected build up in crude stocks according to the latest EIA stock data. Nymex crude rallied strongly on the numbers on Wednesday, only to lose ground again. The real standout – an unexpectedly large drawdown in Cushing stocks specifically, down by 400,000 barrels from recent record highs to 34.5m barrels. All of which means gasoline demand looks to be picking up in the US.
From Reuters:
The Cushing factor has led to a tightening of the front-end timespreads, however. As Goldman Sachs stated in a recent report, this could be the result of an incentive to convert Cushing stocks to gasoline on account of relatively attractive margins.
So could the elusive crude bottom have been reached? Contango flattening will be the key in the next few weeks, and for that to be solidified in any shape or form the front end contracts will be the indicator as and when the index funds and ETFs complete their rolls at the beginning of March.
In the meantime, Morgan Downey, author of industry must-read “Oil 101″ provides this rather insightful graphic to FT Alphaville illustrating how demand fundamentals do suggest conditions for a oil price recovery are in place. He was certainly right on the issue of a Cushing drawdown.
That said, gasoline demand will be key too in the near future. As well as the drawdown on Wednesday versus the previous week, oil demand overall is only down 0.5 per cent on the year. In a nutshell, the crude market is weak — with imports lower and production up — but with gasoline demand looking steady in the face of the slowdown crack spreads could be ready for a boost. The RBOB crack rose to about $11.17 after the EIA data having traded around $10.07 earlier on Wednesday.
Related link:
Goldman calls the bottom in oil, again - FT Alphaville