Oil Inventory Gains Trump Weak Refining (OIH, USO, OIL, UCO)

The Department of Energy has just released its weekly oil inventory data, which was something to watch considering the move up in oil and the cold weather of late.  The data was far less bullish for oil prices than what was expected.  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.

Crude inventories rose by 1.329 million barrels to 327.33 million barrels; Down Jones was expecting a drop of 300,000 barrels and we had been told that -500,000 barrels was more than just possible.

Gasoline inventories rose by a whopping 3.737 million barrels to 219.7 million barrels.  Dow Jones was expecting a build of 300,000 and we were looking for anything above the flat line.

Distillates posted a loss at -233,000 barrels to 159.048 million barrels.

The disappointment here is in the refineries, although this may be mitigated now that our SPR is at the benchmark.  Refineries ran at 79.86% capacity, down from 80.27% a week ago.  Dow Jones had an estimate of 80.5% and we were just hoping for anything above 80% to hold.  This means the refining business is still running at very low levels.

NYMEX WTI Crude is trading down 0.69 at $81.08 as of 10:37 AM EST.  The key ETFs have pulled back slightly on this news: Oil Services HOLDRs (NYSE: OIH) is still up 0.1% at $126.30; the United States Oil (NYSE: USO) ETF is down 0.1% at $40.37; the iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE: OIL) is down 0.15% at $26.66; and the Ultra DJ-AIG Crude Oil ProShares (NYSE: UCO) is down 0.2% at $13.39.

JON C. OGG
January 6, 2010