Crude Oil Increases to Eight Week High as Fuel Supply Falls, Demand Gains

Crude oil fell from an eight week high after a government report showed that U.S. inventories climbed for a sixth week, the longest stretch since May.

Stockpiles rose 1.43 million barrels to 343 million in the week ended March 5, according to the Energy Department report. Imports tumbled 8.1 percent to an average 8.49 million barrels a day, the biggest one week drop since October.

Crude oil for April delivery fell 13 cents to $81.36 a barrel at 12:25 p.m. on the New York Mercantile Exchange. Futures reached $83.03, the highest level since Jan. 11.

Brent crude for April delivery declined 35 cents, or 0.4 percent, to $79.56 a barrel on the London based ICE Futures Europe exchange. Futures touched $81.46, the highest level since Jan. 11.


From Mark Shenk at Bloomberg news. You can contact Mark at mshenk1@bloomberg.net.



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Strong Market Sentiment Boost Commodities

Crude oil rallied after fewer than expected payroll contraction in the US. Investors anticipate improved economic outlook would boost energy demand. WTI crude oil price surged to a 7 week high of 72.07 before closing at 81.5, up +1.6% Friday. The benchmark contract also added +2.3% on weekly basis. Brent crude also rose +2.96% last week, narrowing the spread between WTI BRENT crude prices. We believe this was due to the unexpected stock build in Cushing Oklahoma, where the WTI crude is stored.

The US Energy Department reported on Wednesday that crude oil inventory increased +4.03 mmb, compared with market expectation of +1.9 mmb gain, to 341.6 mmb in the week ended February 26. Cushing stock, halting the downtrend, rose for the first time in 10 weeks. Although utilization rate increased +0.7%, it was more than offset by +2% rise in imports.

Gasoline inventory rose +0.77 mmb to 231.9 mmb despite decline in imports and flat production. Demand slid -2% to around 8.88M bpd. Distillate stockpile continued to draw but the magnitude was less than expected. Although demand rose +4.6% during the week, it remained +21% above 5 year average.

We regard this as a weak set of inventory data. However, the market ignored the huge increase in crude oil inventory but focused on strong ISM services data and other positive macroeconomic data. Moreover, investors might view increase in utilization rate and rise in implied petroleum consumption as signs of recovery in US oil market.

The weekly data is volatile in nature. Let's take a look at the 4 week average. Total product demand averaged at 19.3M bpd over the past 4 week, down -1.2% from the same period last year. Although the contraction has moderated, it's far from being described as encouraging. Similar situations are seen in fuel demands. 4 week average for motor gasoline and distillate were down -2.5% and -7.7% respectively from the same period last year.

In the coming week, the International Energy Agency, the US Energy Department and the OPEC will release their monthly oil reports. We expect to see modest upgrade in global oil demand given stronger macroeconomic outlook. Major growth driver remains in countries outside OECD. In previous reports, all 3 agencies viewed that OECD demand should remain subdue in 2010 and 2011. We will see if there're any upward revisions in these countries as OECD demand is crucial for sustaining oil price above 80.

From Oil N'Gold Saturday March 6th


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