Thursday, April 9, 2009

Crude at Levels Not Seen in 16+ Years + Tiny Distillate Drop = "Shocked" Traders

Reuters reports:

U.S. crude oil futures reversed course and rose sharply Wednesday after government inventory data showed that, despite crude inventories rising to their highest level in nearly 16 years, distillate stocks fell much more than had been forecast for last week, stunning traders.

"The big distillate draw is a big surprise and shocked everybody and that has a lot to do with crude turning to the upside here," said Mark Waggoner, president of Excel Futures in Huntington Beach, California. Domestic crude stocks rose for the fifth straight time last week, by 1.7 million barrels to 361.1 million barrels --- the highest level since the week to July 16, 1993, when stocks hit 362.2 million barrels, EIA data showed.

I'll agree crude rose (and rose to levels seen not 16 years, but closer to 19 years ago)....

But the shock about the "big" draw? While I'm no expert, in the grand scheme of things, this doesn't appear all that "big".

Source: EIA


  1. You must remember that the total supply is already priced into the futures contract ahead of the EIA announcement. Fluctuations in price action immediately following the announcement come from ANNOUNCEMENT:EXPECTATIONS, not ANNOUNCEMENT:TOTAL SUPPLY. However, total working inventory will come back into play as people get their heads back during the session -- which may take five minutes to a day to not happening at all.

    One thing that the Reuters piece missed was the API number that came out on Tuesday afternoon. It pegged a 6.9 million barrel build, which set the stage for bearish trading ahead of the EIA number. That modified trader expectations and presumed a larger build announcement that didn't come. Boom... bullish crude impulse.

    Also, wholesale inventories were down sharply in Feb according to the Commerce Department -- announced around the same time yesterday. Less of a direct driver, but still bullish for energy as it was considered by many to be an opening for new orders with corresponding increased industrial demand.