Analysis by Dr. Nancy Yamaguchi

 

Oil prices dropped sharply yesterday upon the release of the official U.S. weekly supply data by the Energy Information Administration (EIA). The industry had been expecting another drawdown in crude stockpiles, as much as 4.6 million barrels (MMbbls) according the American Petroleum Institute (API). Oil prices had been on a downward path since the close of the OPEC-non-OPEC meeting on May 25, but API’s news of a potentially large drawdown in crude stocks appeared to arrest the downward trend. Crude prices stabilized.

 

In a serious reversal, the EIA instead reported a stock build of 3.295 MMbbls. Crude prices quickly fell by over $2 per barrel (/b).

 

Until this past week, crude stocks had been drawn down for eight weeks in a row, consistent with the ramping up of refineries, the seasonal increase in gasoline demand and the supposed trend toward a better supply-demand balance. The unexpected addition to inventories came as a shock to the market.

 

The EIA also reported a diesel stock build of 4.355 MMbbls, plus a gasoline stock build of 3.324 MMbbls. Last week, the EIA reported a gasoline stock draw of 2.9 MMbbls, which was the largest drawdown in a four-week streak of gasoline inventory draws.

 

As noted yesterday, if the EIA data corroborated the API’s forecast of a gasoline stock build, it may signal weak post-Memorial Day demand. The weekly supply data reported that apparent gasoline demand rose by 118 thousand barrels per day (kbpd) during the week leading up to Memorial Day (the week ended May 26), but it plummeted by 505 kbpd during the week after (the week ended June 2). Naturally, one week of data does not define a long-term trend, but the unexpected additions to stockpiles set off market selling.

 

The across-the-board stock build is having a major impact on prices. For the week ended June 2, crude stockpiles stand at 513.2 MMbbls, 11.4 MMbbls higher than last year’s level. Gasoline stockpiles are 240.3 MMbbls, 0.7 MMbbls above last year’s level. Diesel stockpiles are 151.1 MMbbls, 0.3 MMbbls below last year’s level.

 

West Texas Intermediate (WTI) crude prices have collapsed below $45.50/b this morning. WTI opened at $45.85/b today, a major drop of $2.13, or 4.44%, below yesterday’s opening price. Current prices are $45.44/b, a further decline of 28 cents below yesterday’s closing price. This is the lowest price in over a month.

 

Diesel opened at $1.4268/gallon this morning. This was a decline of 3.41 cents, or 2.33%, below yesterday’s opening price. Current prices are $1.4169/gallon, up slightly by 0.07 cents from yesterday’s closing price.

 

Gasoline opened at $1.5023/gallon today, down 2.65 cents, or 1.73%, from yesterday’s opening. Prices are $1.498/gallon currently, a recovery of 0.67 cents above yesterday’s close.