U.S. Crude Inventory Build Stuns Oil Markets

One hundred and seventy-one years after the birth of Nietzsche, and oil prices are gazing into the abyss. For yesterday's weekly API report yielded a whopping +9.3 million barrel build to crude inventories - pointing furiously to a similar result from today's EIA weekly report. While a build was overwhelmingly expected - we are at the absolute peak of refinery maintenance season after all - such magnitude was not; accordingly, WTI is seeing further downside.

Gasoline, on the other hand, is looking relatively more perky, as a large draw is expected from this morning's report (API reported -5.0 mn barrels), with refinery utilization likely to test the lows seen at the beginning of the year.

Today is 'double data day' given Monday's observation of Columbus Day, and we see the weekly natural gas storage report at 10.30am before crude inventories at 11 am. Natural gas is set to yield a +94 Bcf injection, which would be slightly less than last year's +96 Bcf, but higher than the five-year average of +87 Bcf. Related: The End Of The Oil Major?

Current storage sits at 3,633 Bcf, and with warmer-than-normal weather continuing to blanket most of the U.S. through the duration of October, heating demand should be stymied and injections should be sturdy. Record storage of 3,929 Bcf is in range.

Turning our attention to the overnight economic data releases, and Japanese data points continue to exhibit weakness; industrial production was down 1.2 percent in August on the prior month, well shy of the preliminary estimate of -0.5 percent.

A lack of European releases leads us straight to the U.S., and inflation data. The headline number dropped by 0.2 percent on the prior month, led by a fall in energy costs (all paths, my friends, lead back to energy). Energy costs fell by 4.7 percent in September, led by falling gasoline prices. This has meant that on a year-over-year basis, inflation remains as flat as a beaver's tail. Related: Oil Sands Down But Far From Out

The rosy data point of the day, however, comes from weekly jobless claims, which came in much better than expected at 255,000. This dropped the four-week moving average to 265,000 - which is the lowest level since December 1973:

Weekly jobless claims, 4-week moving average (source: investing.com)

Finally, the below chart is a long-term oil forecast from Barclays, which was published today via Marketwatch. While there is very little upside to publishing a long-term forecast (you are only likely to be wrong), it is useful to consider the various factors involved. Related: Iran Could Trigger A Resource War On Several Fronts Other Than Oil

Barclays points to much higher oil prices by the end of the decade, highlighted by using various demand-side scenarios. What isn't clear from the below, however, is their expectation for a supply crunch. As longer-term oil and gas projects fail to come to fruition by the end of the decade, a tighter supply-side of the equation will be seen - leading to their base case scenario of $85.

By Matt Smith

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