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April crude oil was higher overnight due to continuing short covering. Prices moved steadily higher throughout the session, then eased off just ahead of the NYMEX floor opening and the release of the weekly Energy Department inventory report. Traders must have seen something the Oil Patch analysts couldn't. The U.S. Energy Information Administration report revealed a 700,000 build in crude stocks despite a consensus forecast among analysts of a 200,000-barrel drawdown. Calls for a steadying in refinery utilization among the sell-siders were also off base. Instead, EIA says capacity usage declined nearly a percentage point to 81.4%. Gasoline stocks, says the EIA, declined by a larger-than-expected 3.4-million barrel margin. Traders' expectations of a substantial draw on supplies were reflected in yesterday's NYMEX action. Unleaded gasoline futures rose 3% by the close of Tuesday's floor session. In addition, an 800,000-barrel build in distillate fuel supplies caught analysts - who'd forecast a 1.4-million barrel off-take - by surprise. Once again, it was traders who caught an early whiff of that. Over the past two trading sessions, following the expiration of the March crude futures, heating oil slipped back into discount against gasoline. As a result, gasoline cracks widened over heating oil margins. Overall refining margins have now declined to levels not seen in a month and seem to be testing the steep uptrend line established late last year. NYMEX-Derived Refining Margins 
Oil's contango was trimmed by a third over the past week, paring the quarterly carry to 10.5%. That's still plenty of incentive to hoard oil for later delivery. Crude's technicals hint of a short-term low, but closes above $40.40 in the nearby April contract would confirm the market's strength. Meantime, the $34 level remains the bull's-eye for shorts.
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