Eight Million Reasons
There were eight million reasons why oil sold off yesterday and most of them were in the Gulf Coast of the United States. The Energy Information Administration (EIA) status report blindsided the market after reporting that Gulf Coast crude supply shot up over 8.0 million barrels. That incredible increase, driven mainly by Saudi oil, caused U.S. inventories to swell to the highest level since the 1930. Overall the EIA showed crude oil supplies increased by 4.8 million barrels which happens to be about 8.0 million barrels above average. Those shocking numbers stole the thunder from Janet Yellen and Fed that was supposed to be the oil feature for the day.
Last week we saw oil inventories fall but they more than made up for that yesterday. Last week’s draw had many speculating that refiners were driving down inventory ahead of year end to avoid paying tax on crude inventory. Yet perhaps that is not as much of an issue for them as oil prices are almost $20.00 a barrel cheaper than they were last year.
We also saw a drop in refinery runs to 91.9% as the demand for heating oil is weak due to warm weather. Distillate fuel inventories that include heating oil, increased by 2.6 million barrels last week and are in the upper half of the average range for this time of year according to EIA. That helped drive ultra low sulfur diesel futures (which includes heating oil) down 3.45 cents, or 3%, to $1.1122 a gallon, the lowest settlement since August 2004.
Reuters reported that India's fuel demand rose 6.4 percent in November compared with the same month last year, driven by higher sales of gasoline as discounts and festive season buying boosted passenger vehicle sales. Consumption of fuel, a proxy for oil demand, totaled 14.8 million tons, data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry showed. The rise in India's fuel demand is in contrast with sagging oil consumption in China, the world's second largest economy.
Oil and gas demand is going to be one of the main reasons I expect an oil price comeback. It may be India that will shock oil demand prognosticators just a China did in the last decade. India is the new China when we look at oil demand growth for next year.
Yahoo News and ETF trends reported that the United States Gasoline (N:UGA) , which tracks gasoline futures, rose 3.8% Thursday as Nymex RBOB Gasoline futures gained 3.5% to $1.275 per gallon. Meanwhile, the United States Oil (N:USO), which tracks West Texas Intermediate crude oil futures, dipped 1.0% as WTI crude oil futures was down 0.9% to $36.8 per barrel.