Inventory & SPR Data Confuse Oil Bulls & Bears (OIH, USO, OIL, UCO)

There were two very interesting events in the crude oil markets today.  As with almost all Wednesday’s we got the weekly crude oil inventory data from the Department of Energy.  This data was mixed to slightly bullish for those who enjoy seeing oil prices rise.  But another notion may be the game changer…. The U.S. Strategic Petroleum Reserve is full!  Well, sort of.  The DOE noted before inventories this morning that the SPR has reached its current capacity of roughly 726.6 million barrels of crude oil.  That does not imply that the SPR cannot be grown further nor that SPR ‘should not be grown’ further. On the news, we are watching the Oil Services HOLDRs (NYSE: OIH), the United States Oil (NYSE: USO) ETF, the iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE: OIL), and the Ultra DJ-AIG Crude Oil ProShares (NYSE: UCO) as the key oil and oil service ETFs on the news.

As far as the SPR is concerned, the prior mandate was to get the reserves up to 1 billion barrels.  So the SPR is not full, but it is effectively at that 90-day threshold.  This is of course very subjective data and the real usage under emergencies versus the current usage have been issues up for debate for about a generation.

On the DOE oil inventory data, this was as follows:

• Crude inventory down 1.538 million barrels to 326 million barrels; Dow Jones estimate was -1.7 million barrels.  We were looking for a draw of only 1 million, but this is not enough to move the needle either way.
• Gasoline inventory was down 366,000 barrels to 215.964 million barrels; Dow Jones had an estimate at +400,000.  We were also looking for a build, so this notion was a disappointment.
• Distillates came in at -2.05 million barrels to 159.281 million barrels; Dow Jones was at -2.1 million barrels so no real impact.
• Refineries ran at 80.27% versus last week’s 80.04%.  Dow Jones expected 80.1% and we were going to be happy with anything above that 80% threshold.

At 11:22 AM EST we have NYMEX WTI Crude trading unchanged at $78.87.  The Oil Services HOLDRs (NYSE: OIH) is down 0.6% at $119.25, the United States Oil (NYSE: USO) ETF is flat at $38.84, the iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE: OIL) is up 1 cent at $25.61, and the Ultra DJ-AIG Crude Oil ProShares (NYSE: UCO) is down less than 1 penny at $12.42 as the key oil and oil service ETFs on the news.

Unfortunately, the news today probably leaves oil traders with more questions that it does actionable answers.

JON C. OGG