The Energy Information Administration reported a draw of 7.525 million barrels in crude oil inventories in its Weekly Petroleum Status Report for the period ended July 11, 2014. The drop is the largest since a January 11, 2014 draw of 7.628 million barrels and far exceeded the estimates of ten economists polled by Bloomberg.
The current reduction is more than three times the average economist estimate of -2,100 and nearly twice the highest estimate of -3,600.
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Despite the reduction, current inventories are still 4.5% (16.2 million barrels) above the average mark for the last five years. It is currently less than 1% (just 2.351 million barrels) below the five year high.
Following the release, KLR Group issued a note that maintained its long term spot prices for Brent and NYMEX at $105 and $97.50, respectively. However, the Brent/WTI spread shifted to the $5 to $10 range as opposed to a previous estimate of $7.50.
According to The Wall Street Journal, Morgan Stanley said: “The physical market appears oversupplied for now as crude supplies rebound at a time of poor refining margins. The issue is further compounded by the reopening of Libyan ports.”
Phil Flynn, an executive at Price Futures Group, added: “We definitely have a bullish tilt to the market. Based on these strong demand numbers, we may have hit a short-term bottom on oil prices. It’s not piling up in storage. If they can produce that much product and not build inventories then it’s obvious that there’s demand somewhere.”
Refinery rates also rose by 2.2% and operated at 93.8% capacity for the week, according to the EIA. Specifically, Midwest refineries operated at 100.3% capacity and received the second most crude input, trailing only the Gulf Coast. Total refinery output is the highest since 1989, according to Bloomberg.
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