Inventories fall 4.9 MMBO

Oil prices surged today following news from the Department of Energy that U.S. inventories declined this week following 7 consecutive weeks of record setting builds. U.S. crude oil inventories declined 4.9 MMBO this week to 529.9 MMBO. The average economist estimate this week was a build of about 3 MMBO, according to information complied by Bloomberg.

Also helping to support oil prices today, TransCanada Corp. (ticker: TRP) announced the delayed restart of its Keystone pipeline, which has a capacity of 590 MBOPD.

International crude oil benchmark Brent was underpinned by planned maintenance work at Norway’s Ekofisk and Britain’s Buzzard oil fields.

The EIA reported that gasoline stocks rose for the first time in six weeks, along with stockpiles at Cushing, Oklahoma, but investors remained focused on the overall inventory number, reports CNBC.

“I think the market is more about the total change in (crude) inventories, rather than individual components,” said Scott Shelton, energy broker with ICAP. “It’s the first week of the second quarter and we have a net draw. That will force the bears to rethink their bearish balances for Q2.”

Refineries geared up for increased gasoline demand this summer, running at 91.4% of capacity, up 1% from last week.

“Refineries are ramping up to meet gasoline demand” this summer, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. told The Wall Street Journal. “Refineries are definitely, no doubt about, using more crude oil than they were last week.”

Increased prices potentially a knee-jerk reaction

“One week does not make a trend,” said Chip Hodge, a senior managing director at John Hancock Financial Services, “but hopefully we’ll see this continue and finally see this excess inventory worked off.”

A drop in crude oil imports seen this week was caused by fog in the Houston Ship Channel, and imports are likely to rise again next week, said Matt Smith, director of commodity research at shipping tracker ClipperData.

The price gains are “a knee-jerk reaction to a bullish headline crude number,” said Smith. “But given that we should see a return to [inventory] builds next week, it seems like this could be a temporary move.”

“U.S. crude-oil imports into the East Coast (PADD 1), Gulf Coast (PADD 3) and West Coast (PADD 5) averaged 4.441 MMBOPD last week.  That is down 0.632 from the week before and 1.222 lower than three weeks ago,” according to Energy Directions President Mike Smolinski’s April 6, 2016 Energy Market Assessment.

U.S. crude production declined by 14 MBOPD during the week, but remained above the 9 MMBOPD mark, reports the EIA. This week’s data “would imply that we’re going to slide below 9 million next week,” said Yawger. “That’s positive for the market.”

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