Brad's Desktop

Real-time Monetary Inflation (last 12 months): -1.4%

Last week, the American Petroleum Institute, the oil industry's trade and research arm, estimated that domestic crude oil inventories fell by 7.4 million barrels. Definitive data from the U.S. Energy Department, however, showed a drawdown of only 3.3 million barrels.

This week, the API trotted out another call for a 7-million-barrel decrease and got it right. Late Tuesday, the institute's survey indicated that crude stocks tumbled by 7.7 million barrels. Energy Department data released this morning documented an actual decline of 7.3 million barrels.

U.S. commercial crude oil inventories now stand at 357.6 million barrels.

Analysts' expectations contrasted sharply with API's this week, with some on the Street eyeing a 300,000-barrel drawdown, and others, at the other extreme, looking for a 1.2-million-barrel build.

The contrast between the industry group's and analysts' guesstimates of gasoline inventories wasn't as dramatic. The API said that motor fuel stocks fell by 1.7 million barrels, while analysts called for a decline between 400,000 and 800,000 barrels. Government data showed the actual drawdown, at 2.7 million barrels, was more bullish.

The Energy Department also reported that distillate fuel inventories, including diesel and heating oil, decreased by 1.1 million barrels. The API estimated a 222,000-barrel build, compared with Oil Patch expectations of a 2.1-million- to 2.2-million-barrel drop.

Refinery usage was forecast to rise from 82.4 percent to 82.9 percent, but actually jumped to 84.0 percent. Gasoline production fell to a daily average of 8.9 million barrels, while distillate fuel output increased to 4.3 million barrels.

Demand for motor fuel averaged 9.1 million barrels per day, up 1.8 percent from the same period last year, while the daily consumption of distillate fuels averaged 4.1 million barrels, a 13.9 percent increase from year-ago levels.

Trading Week

Oil price volatility spiked 2.5 points higher this week to an annualized rate of 33.4 percent.

For the week, West Texas Intermediate tumbled 5.1 percent, while gasoline slipped 3.3 percent and heating oil declined 4.1 percent. Refiners' margins, as a result, improved. Operators cranking out gasoline-heavy product mixes saw their margins tick up 1.7 points to 11.5 percent. Distillate-rich runs brought in 13.3 percent, a 1.6-point improvement.

The heating oil/gasoline spread contracted by 2.6 cents a gallon this week.

Meanwhile, the ethanol crush improved from $1.46 a bushel to $1.52 as prices for the alcohol fuel fell by 10.2 cents a gallon. In was the 35-cents-a-bushel decline in corn prices that boosted the crush margin. Corn's correlation to ethanol spiked to 93 percent this week.

Average daily volume for WTI futures jumped 25.7 percent to 761,746 contracts, while open interest slumped by 37,906 contracts, ending at 1.455 million on Tuesday.

Commercial traders amassed a record-high net short position in WTI futures as the oil market's contango narrowed. A three-month roll, costing $1.62 last week, is now $1.38. Meanwhile, Brent crude's premium to the U.S. benchmark expanded to $1.04 a barrel from 48 cents last week.

Technical Picture

Crude oil's upward momentum was broken this week. Front-month December is now aiming southward toward a consolidation area around the $81.80 level. Underneath is a critical retracement level of oil's September-November ascent at $79.70.

With crude now below its 10-day moving average, overhead resistance is at $85.92 today. Intermediate resistance should be expected at $82.51 and $83.33, basis the December contract.

Near-term support rests at $81.02 and $80.35.

Front-Month WTI Crude Oil