HardAssetsInvestor

Written by Sumit Roy  |

May 17, 2012

Crude Oil Report: Brent Plunges To Lowest Level Of 2012, Could Fall To $100 As US Weighs Reserve Release

Details

The multimonth correction in crude oil continues.

 

The Department of Energy reported Wednesday that in the week ending May 11, U.S. crude oil inventories increased by 2.1 million barrels, gasoline inventories decreased by 2.8 million barrels, distillate inventories decreased by 1 million barrels and total petroleum inventories increased by 2.9 million barrels.

 

 

Brent crude oil prices sagged to the lowest levels of the year today, as the $110 support level finally gave way amid mounting economic concerns. The benchmark is now poised to test the key support area between $98 and $102.

Aside from the economy factor, speculation is mounting that governments led by the U.S. will release strategic petroleum reserves onto the market to offset the loss of Iranian supply when the European Union's embargo goes into full effect in July.

Such a move could be a significant downside catalyst for oil prices in the coming months.

 

BRENT

 

WTI

 

 

 

Meanwhile, the spread between Brent and WTI remains relatively well behaved near $15. Despite the imminent reversal of the Keystone pipeline, the differential between the two benchmarks remains substantial. Cushing, Okla., inventories hit a record high last week and that is weighing on WTI.

 

 

 

However, as we wrote in a report earlier this week, pipeline capacity from Cushing to the Gulf Coast is expected to increase dramatically over the next two years, making it likely that the spread will eventually close completely.

 

 

Turning to this week’s EIA inventory figures, total petroleum inventories in the U.S. rose by 2.9 mmbbl, against the five-year average of a 1.3 mmbbl increase. In turn, the inventory surplus rose to 34 mmbbl, or 3.3 percent.

 

 

Crude oil inventories rose by 2.1 mmbbl, against the five-year average of a 1.1 mmbbl decrease. In turn, the surplus in the crude category rose to 28.4 mmbbl, or 8 percent.

Regionally, inventories inside and outside the Midwest rose.

 

 

 

 

Gasoline inventories fell by 2.8 mmbbl against the five-year average of a 0.8 mmbbl decrease. The gasoline deficit now stands at 3.3 mmbbl, or 1.6 percent. Distillate inventories fell by 1 mmbbl against the five-year average of a 0.1 mmbbl decrease. In turn, the distillate deficit now stands at 14.6 mmbbl, or 10.9 percent.

 

 

 

 

Demand

Total petroleum demand in the U.S. rose to 19 mmbbl/d, while gasoline demand rose to 9 mmbbl/d. On a four-week rolling basis, total demand was up by 0.4 percent from last year. On that same basis, gasoline demand was down 2.6 percent and distillate demand was down by 0.5 percent.

 

 

 

 

 

Imports

Crude oil imports fell by 0.1 mmbbl/d to 8.9 mmbbl/d. On a four-week rolling basis, imports have been 0.1 mmbbl/d below the year-ago level.

 

 

 

 

 

Refinery Activity

Refinery utilization ticked up to 88.3 percent from 86.4 percent. Utilization is above the five-year average and the year-ago level. Gasoline production rose to 9.1 mmbbl/d, while distillate production rose to 4.5 mmbbl/d.

 

 

 

 

 

Miscellaneous

U.S. crude oil production edged up to 6.149 mmbbl/d, a fresh 13-year high. Output has been rising swiftly thanks to surging production in unconventional oil plays. Year-to-date, production has been up 337 bbl/d, or 6.1 percent, year-over-year.

 

 

Inventories at the NYMEX delivery point in Cushing, Okla., rose by 1 million barrels to a record 45.1 million barrels, or 68 percent of the EIA’s estimate of capacity. Overall Midwest inventories rose by 0.3 million barrels to 107.1 million barrels, or 79 percent of estimated storage capacity.

Front-month WTI calendar spreads remained in contango at -$0.38.

Front-month Brent calendar spreads remained in backwardation at +$0.48.

West Texas Intermediate’s discount to Brent fell week-over-week to -$15.25 from -$15.65. WTI’s discount to Louisiana Light Sweet fell to -$11.85 from -$14.