Oil Market: Middle Distillates Not Looking Bullish

This (Thursday) morning, flat price is strong in crude oil while middle distillate cracks have given back the gains they made yesterday over the excitement of a draw and somewhat better looking demand numbers. As suspected, most of these draw were attributed to increased exports of diesel. The chart below shows total distillate stocks and the diesel component within the reported headline number.

Admittedly, SFOT was jumping into the assumption these were heading to Europe for storage. It could well be S. America or Mexico etc. Wherever these oil are going, distillate numbers are not bullish in anyway until the days forward cover comes down to more realistic level.

White= Total distillate
Red= low sulfur distillate

Distillate Days cover

In a similar way, stocks in cushing admittedly has been declining over the past several weeks. However, the fact that it had reached almost capacity weeks ago means this decline is just mechanical and should not be any bullish to the market. Moreover, as tigeram1 commented yesterday (cheers for that btw), offshore crude can be called in easily. If we see more voluntary run cuts and higher than normal refinery outages, then crude stocks will swell again. WTI trading below Brent is a sensible market mechanism to reduce crude flow into the US( in theory we should look at LLS but will go into that later). The fact that WTI in the prompt remains well below Brent, cemented by k9m9 in significant contango is a tell tale sign that physical market has nothing bullish for crude, yet.

Cushing stocks WTI

IEA to publish even worse demand numbers were doing the rounds recently and at the moment, there seemed to be no real consensus as to how bad demand might be headed whereas there seemed to be a consensus that crude stocks will at least be balanced in the next few quarters.

Perhaps when demand becomes clearer we will get a better picture of the next trend, but at this moment, SFOT has to say, the shorts might not have the power in this game.

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