A Bottom Is Developing For Oil

On Monday, we published our WCTW noting that we are seeing signs of a bottom forming in the oil market. Today was another one of those days that validated our preliminary assumption. Following the EIA oil storage report, it looked at one point that WTI was going to break the critical support at $77.40 only to rebound back and close the day higher. While this was all unfolding, I had my eyes glued to the 3-2-1 crack spread. I wanted to see refining margins bounce and thankfully, it did.

Something is off about the data...

Aside from the fact that refining margins bounced today, there's also something I want to point out to you. Something is off about the weekly US implied oil demand data.

Total US implied oil demand on a 4-week average basis is at the highest level over the past 5-years. This is an extremely positive sign that US demand will be strong going into the summer.

But the caveat to this is that the gasoline, distillate, and jet fuel figures remain weak.

However, as we noted 2-weeks ago, if you include other oil into the big 3 categories, you can see the 4 segments are also at a 5-year high (see chart below):

To me, the strange thing about this data is that the other oil category has grown in recent years boosting total US implied oil demand. All the while, the big 3 implied demand is lower than the previous years. There appears to be an issue with the way EIA is capturing the implied oil demand data, so we will have to use the other oil category going forward to calculate real demand.

Keep in mind that other oil demand is ~25% of total oil demand, so this is no small rounding error when it comes to calculating demand.

Inventories to draw...

A month ago, we warned that global oil inventories were going to build amidst the global refinery maintenance season underway. For US oil balances, we also warned that no immediate catalysts were on the horizon and readers should not expect any meaningful inventory draws.

This is going to change in the coming weeks. Here is our latest US crude storage projection (assuming EIA returns the barrels):