What Bullish Data Did the Trading Bots See in Today's EIA Weekly Crude Report that You Didn't See?

What did the WTI crude oil trading bots/computers see in today's weekly EIA report that kicked off an immediate, powerful and sustained buy response?  Especially considering that the day was led by a Tuesday API report showing 11.4MM bbl crude build and the EIA report came in relatively close with a 8.38MM bbl crude build.  Both numbers far exceed the published analyst consensus of 3.5MM bbl.

The number one item is yesterdays bullish move in the broader markets was considered a follow through day on a rally attempt by many.  This moved the general market condition from correction to confirmed uptrend for those traders.  This means those traders are looking for a reason to buy, not reasons to sell.  The possibility of some OPEC and non-OPEC producers cooperating on cuts doesn't hurt the bulls either.  So let's look at bullish characteristics of the EIA report and characteristics that may cast doubt on the prevailing bearish crude oil story.

1)   Total stocks of crude oil + petroleum products unexpectedly dropped by 1.05MM bbl for the week.  While crude built, this meant refined inventory dropped by 9.5MM bbl for the week which is historically among some of the largest one week drops in refined inventory.  This adds weakness to the lack of demand case for petroleum products.  Refineries burning propane to crack other oils like bitumen and asphalt is leading to a big drop in refined inventory while supporting a build in crude.  This will continue if the US can export light crude and import heavy crude.  i.e. The trading bots aren't fooled by refiners burning through other oils to run their operations instead of crude.  These bots also know that as refiners move into summer mode, they will again be building other oil inventories putting a much heavier draw on crude.


2)  Petroleum products supplied spiked to 21.1MM bbl/day after a big surge the previous week.  This  nearly wipes out the big dip in petroleum supplied in the last week of 2015 and first week of 2016.  It also brings the 10 week average for petroleum supplied up to 19.8MM bbl/day which is above the 1 year average of 19.7MM bbl/day.  Back to back 20MM bbl/day and 21MM bbl/day weeks is very huge, especially given a prevailing idea that demand is just terrible.

3)  Refinery utilization dropped for seasonal maintenance.  On the surface it seems bearish and weeks ago it was as the market front runs this fact.  However, when maintenance hits it actually has a bit of a bullish characteristic.  Since the refining process has a gain of appx. 15% associated with it, more barrels of refined products are produced than barrels of crude used.  If  refiners slowdown by 1MM bbl/day during maintenance, refined inventories will actually drop 1.15 MM bbl/day just due to the maintenance slowdown.  So if you watch total inventory of crude + petroleum products it will fall quicker when refineries are slowing than if everything were to remain constant.  This is magnified since gasoline and distillate inventories are watched closely by most, but the remaining refined product classifications are widely ignored.

4)  Cushing inventory was down 770k bbl.  Overall Midwest inventory was down 1.29MM bbl in 2 weeks.  Many follow Cushing inventory as a leading indicator of US production.  I can't be the only one casting serious doubt on the EIA estimates that show US production maintaining--remaining resilient--in the face of lower prices given well completion rates in Texas and ND have fallen off the map in recent months while shale wells decline 5%/month, 65%/year.  We know new wells are needed to replace output losses due to the natural decline.  Since Dec. 4 Unaccounted for Oil has been repeatedly and abnormally negative in a big way.

I believe EIA will soon be updating their production model, either the the first week of February--next week-- or the first week of March, and then US production estimates will fall off at an extreme rate, 2-3%/month, just as they did during the summer of 2015.

5) While Canadian imports spiked in December and early January they have now fallen 10% in 2 weeks, about 2MM bbl/week off peak.  Given that we now know Canadian tar sands operations are now running at operating losses, and there is talk of many tar sands producers pulling in maintenance soon while this years maintenance season will be longer and heavier than 2015, this may be the beginning of Canadian imports dropping by 3-4MM bbl/week from current levels and staying there for an extended period until WTI reaches about $46.