Oil prices continued their decline for the sixth trading session (basis WTI) in row as the current fundamentals point to lower prices. The market remains focused on projections for lower oil demand growth, robust supply and building inventories. Yesterday total crude oil and refined product inventories built again in the US by 2.6 million barrels (see below for a more detailed discussion on this week's inventory report). Further adding to the concern in the market has been macroeconomic data that continues to suggest that the global economy is faltering. Yesterday GDP data out of Europe showed France now moving into recession with the overall EU recession deepening a tad last quarter.

As has been the case for months the oil complex is being supported by the massive stimulus programs in the developed world. Oil prices would likely be a lot lower if it were not for the support coming from the monetary side of the equation. At the moment the only upward price support for oil is the QE programs in the US, UK, Japan.

Geopolitics are also somewhat quiet with the latest meeting between Iran and the IAEA ending with no movement on resuming inspections in Iran. With this result the sanctions will remain and thus keep a portion of Iranian oil off of the market for the foreseeable future.

As I have been warning the Brent/WTI spread has continued to widen with the spot spread now approaching the next résistance level of around $10.50/bbl. The June spread expires on Friday. With a weekly build in Cushing for the week ending May 10th and with the prospect of maintenance coming in June in the North Sea the market has changed it short term sentiment to a more bullish outlook for the spread in the near term. For the moment the spread looks like it may move further to the upside before resuming its next leg down. Longer term I am still expecting the spread to narrow once the maintenance is over in the North Sea.

Another recipient of the massive stimulus programs has been the global equity markets. The EMI Global equity Index has now recovered all of its earlier week losses and is now showing a small gain for the week. The Index is up by 0.15 percent for the week with the year to date gain widening to 2.5 percent or the highest level since early February. China is now on the cusp of moving into positive territory for the year showing only a 0.8 percent loss for 2013 with Brazil still showing a loss hovering near the double digit level. Japan continues on the top of the leader board with the US Dow holding the second spot. Equities have been supportive for oil prices.

Wednesday's EIA inventory report was biased to the bearish side as total commercial stocks increased modestly on the week. Overall I would categorize the report as bearish even with a small (expected) decline in crude oil stocks. Total commercial stocks increased by 2.6 million barrels as crude oil inventories decreased slightly for the week. Refinery utilization rates increased by 1 percent to 88 percent of capacity suggesting that scheduled spring maintenance is starting to wind down. The data is summarized in the following table along with a comparison to last year and the five year average for the same week.

Total commercial stocks of crude oil and refined products increased by 2.6 million barrels. The year over year surplus came in at 28.4 million barrels while the surplus versus the five year average for the same week widened to 31.2 million barrels. Crude oil inventories decreased (by 0.6 million barrels) and within the market expectations. Crude oil inventories have been increasing steadily for most of this year and are still well above the levels they were at during the height of the recession as well as being around an 82 year high. With the decrease in crude oil stocks this week the crude oil inventory status versus last year is showing a surplus of around 13.2 million barrels while the surplus versus the five year average for the same week came in around 32.7 million barrels.

Crude oil imports increased slightly on the week. PADD 2 crude oil inventories increased modestly by about 0.3 million barrels while Cushing, Ok crude oil inventories increased modestly by 0.6 million barrels on the week.

PADD 2 crude oil stocks are still showing a surplus of 9.4 million barrels versus last year and 25.4 million barrels versus the five year average. The Cushing area surplus came in at 4.6 million barrels versus last year and 15.3 million barrels compared to the five year average.

There is still a lot of crude oil to be removed from the area before the Brent/WTI spread gets back to a historically normal level of WTI trading at a premium over Brent. The modest increase in crude oil inventories in Cushing was bullish for the Brent/WTI spread. Along with the prospects of a June maintenance program in the North Sea the spread has reversed out of its narrowing trend as discussed in detail above. There was a large decrease in refinery utilization rates in PADD 2 (decrease of 5.1 percent) suggesting that the return from the spring maintenance season may be lagging in that region of the US and thus contributing to the crude oil inventory build in PADD 2 and Cushing this week

Distillate stocks increased by 2.3 million barrels and greater than the market expectations as refinery run rates increased by 1.0 percent. Heating oil/diesel stocks increased modestly on a week over week basis as the weather was starting to finally become more spring like. The year over year surplus came in at 0.1 million barrels while the five year average deficit came in around 14.2 million barrels.

Gasoline inventories increased modestly and more than expectation for a small draw. Total gasoline stocks increased by about 2.6 million barrels on the week. The surplus versus last year came in around 13.4 million barrels while the surplus versus the five year average for the same week came in at about 7.6 million barrels. Gasoline stocks increased in PADD 1 (US East Coast) by 1.8 million barrels this week with the surplus versus last year coming in around 9.7 million barrels with an 8.2 million barrel surplus compared to the five year average for the same week. Heading into the summer driving season gasoline currently looks well supplied.

The following table details the week to week changes for each of the major oil commodities at every level of the supply chain. As shown I have presented a mixed categorization on the week for the complex. Overall this week's report was biased to the bearish side.

I am maintaining my view of the entire complex at neutral. Global demand growth is still looking like it is turning to the downside. On the other hand the market has been pushing oil and other commodity values higher as more liquidity from advanced country central banks continues.

I am maintaining my view at neutral for Nat Gas but upgrading my bias to cautiously bullish as yesterday's price reversal and breaching of the upper range resistance level suggests higher prices could still be in the cards. The fundamentals remain neutral at best as most of the current move is technically driven.

This week the EIA will release its inventory on its normal schedule and time... Thursday May 16th at 10:30 AM. This week I am projecting the fifth injection of the season of 95 BCF into inventory. My projection for this week is shown in the following table and is based on a week that experienced a modest level of above normal temperatures during the report period. My projection compares to last year's net injection of 56 BCF and the normal five year net injection for the same week of 83 BCF. Bottom line the inventory deficit will narrow this week versus last year and the more normal five year average if the actual numbers are in sync with my projections. This week's net injection will be neutral with a slight bias to the bearish side when compared to the historical data.

If the actual EIA data is in line with my projections the year over year deficit will come in at about 698 BCF. The deficit versus the five year average for the same week will narrow to around 87 BCF. The early market consensus is projecting the fifth injection of the season in the range of 85 BCF to 110 BCF with the consensus around 95 BCF. Markets are mostly lower ahead of the US trading session as shown in the following table.

Dominick A. Chirichella

Follow my intraday comments on Twitter @dacenergy.

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