Higher Oil Prices Already Impacting Inventories (USO, OIL)

The D.O.E. has just released weekly data for crude oil, and the losses in weekly inventories appear to be a bit reversed this last week.  Crude inventories came in up 2.866 million barrels at 365.977 million.  This is significant, because we had estimates for black gold looking at a draw down of 1.5 million barrels after two solid weeks of prior draw-downs.   It is already impacting trading on the United States Oil ETF (NYSE: USO) and in the iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE: OIL).

Gasoline stocks may lag a bit, and these came in slightly down at -215,000 barrels to 203.2 million barrels.  Distillate inventories came in as a gain of 1.66 million barrels to 150.03 million barrels.

The good news here is on the supply front and what it means for prices.  It shows that if prices rise too much, there is an impact on demand even if you consider that demand was much higher a year ago at much higher prices.

Oil refineries ran at 86.26%, up from 85.11% last week and above estimates (Dow Jones noted 85.5% expected.

We are also entering the summer driving season at historically very high levels.  There is always the notion that this logic is coincidental rather than leading or truly reflective.  That is how it looks now with oil above $65.00 per barrel.  Demand destruction occurs at higher prices, and more and more unemployed or underemployed workers will likely continue to erode demand from many.

The United States Oil (NYSE: USO) is down 2.2% at $36.79, and that was at $37.15 ahead of the data. The iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) is down 2.4% at $24.21, and this was close to $24.50 before the data was out.

Jon C. Ogg
June 3, 2009