Oil Inventory Surprise (OIH, USO, OIL)

The Department of Energy has just released its weekly inventory data for crude oil, gasoline, distillates, and refining levels.  This week was marked by draw-downs but because of the weakness in the markets we are not seeing a rally in oil prices.  The notion that this is ahead of the Labor Day weekend may be a factor as well.  We have been watching the Oil Services HOLDRs (NYSE: OIH), the United States Oil (NYSE: USO) ETF and the iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE: OIL) react to this news.

Crude oil inventories fell by 372,000 barrels to 343.38 million barrels. Dow Jones had estimates around -400,000 but we had been looking for a bigger draw of closer to 1 million barrels based upon trader discussions on refining being higher.

Gasoline inventories were down by almost 2.97 million barrels for the week to 205.08 million barrels.  Dow Jones had estimates at -700,000 barrels, but we were looking for only a draw of ‘only’ about -500,000 based upon trader discussions.

Distillates posted a rise of 1.179 million barrels to 163.56 million barrels.  The big jump was in refining at 87.15% vs. 84.09% last week.  Dow Jones had a target of almost 84.4% but our trader discussions were looking for more than 85%… Either way, refining levels were up much more than expected.

The reaction is so far not a strong one on the news.  Maybe the NYMEX has a light attendance now that we are closer to a 3-day weekend where mostly junior staff is manning the trading desks and floors…

• The Oil Services HOLDRs (NYSE: OIH) is doiwn 1.1% at $102.44.
• The United States Oil (NYSE: USO) ETF is down 0.7% at $35.04.
• The iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE: OIL) is down 0.6% at $23.10.

We would looked for a rise in the underlying price of oil here rather than softness, but that may be taking longer to occur and may be because of the recent market activity rather than a normal ‘number reaction.’

JON C. OGG
SEPT. 2, 2009