Oil Price Digest 16-Feb-17

Crude Oil

The DOE reported a substantial build in crude stocks of 9.5 million barrels.  It also reported a significant build in gasoline stocks and a small draw in gasoil stocks. The draw however was in line with expectations

Over the last 6 months, crude stocks have built by close to 35 Million barrels. They are more than 8% higher than last year.

Such builds would normally result in markets selling of crude.  But this has not happened this year. On the contrary, an unusual trend has been observed and reported in the Financial Times.  Almost every week, after inventories have reported a build, there has been a small dip in prices for the first 10 minutes followed by a spurt so that half an hour after the data was released, prices have been higher.  WTI prices have settled higher on four of the five weeks. before this weeks report.

Yesterday too seemed to follow this trend. However, while on previous occasions, crude price invariably rose and stayed higher, crude prices couldn’t register a positive close although they came pretty close to it.

The spurt in buying typically comes in around 10 minutes after the reports.  However, the prices are not sustainable in the long run and they fizzle out on Thursday and Friday, which is why we are range bound.

Needless to say, there is a lot at stake to defend the high prices, both for the producers, who have cut output, and the hedge funds who have laid on massive positions, a phenomenon that we have been discussing for long.  This kind of price behavior only lends greater strength to our stance that the price rise is artificially sustained rather than reflective of any strong supply shortage or demand growth.

Naphtha was marginally softer yesterday.  The March MOPJ crack at around $ 2.95 / bbl value.  The Singapore crack for March is valued at around $ 2 /bbl