The DOE data, in terms of changes to stock is shown below. Basically, crude built by 1.5 Million barrels against an expectation of a 3.1 million barrel build. There was a small draw in Gasoline, which was a little less than expected. There was another small draw in distillates, which was again less than expect.
While the smaller than expected build for crude could be construed as mildly bullish, the current stock levels of 520 million barrels of crude is at multi year highs. Gasoline drawing less than expected as we approach the driving season only has a bearish connotation.
In the face of all this, the extreme buoyancy of crude prices needs to be looked at carefully. There could be two possible interpretations.
The first option is that funds are playing the long game and expect rebalancing to happen in the next month or two. Hence they are comfortable with the crude builds and indeed, we may soon see crude prices rise again notwithstanding this bearish data.
The second option is that they are awaiting a suitable opportunity to exit slowly. Or alternately, they are asking for their fingers to get burnt.
We believe that crude prices are not sustainable at these levels. To some extent the market bears out our views with all product cracks having collapsed by over a $ / bbl today.
The already burdened gasoline crack was further hammered by high crude prices. The March crack is valued at $ 9.3 /bbl., a drop that is similar in magnitude to Naphtha cracks.
If we look at the rest of the barrel, the gasoil cracks have weakened only marginally. The March crack is valued at $12.0 / bbl . The regrade however, got hammered as jet prices dropped to over $1 /bbl under gasoil.
Fuel oil cracks too have dropped by over a dollar. Though there were reports of a bull play having commenced in the window yesterday, it failed to sustain market interest. 22 deals were reported in the window yesterday, the highest number in at least a year. The March crack is valued -$ 4.1/bbl and April around the same levels.
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Disclaimer : All the views are the author’s personal views. These do not constitute an advice to buy or sell any commodity