Energy Prospectus

The American Petroleum Tuesday reported a fall of 840,000 barrels in U.S. crude stocks in the latest week.
Expectations were for a fall of 1.47 million barrels.
The Energy Information Administration U.S. inventories report is due out later in the session.
U.S. shale output is expected to increase this year, offsetting the impact of cuts by major producers.
OPEC and non-OPEC producers are cutting production by 1.8 million barrels a day in the first half.
A decision on a possible extension of that deal is expected to be taken on May 25.
OPEC secretary general Mohammad Barkindo said Wednesday accord participants are committed to stabilizing the market.

An interesting tidbit: For the past four weeks, according to preliminary EIA data, the U.S. has taken in about 12 percent less Saudi crude than the same time a year ago.

The EIA said crude inventories fell by 1.034 mn barrels after a fall of 2.166 mn barrels the previous week.
So why is the oil price down? >>>Crude inventories were forecast to fall by 1.470 mn barrels.

Gasoline stocks fell by 1.542 mn barrels after a fall of 2.973 mn barrels the previous week.
Gasoline inventories were expected to fall by 1.938 mn barrels.
-----------------------
Traders tend to over-react to the headline numbers. Declining inventories are good and I expect the declines to continue.

The "experts" on TV say the $2.00/bbl drop in oil prices today was cause by a larger than expected increase in gasoline inventories. BTW crude oil and distillate inventories were down more than gasoline was up.

Crude oil inventory down 1,034,000 bbls
Gasoline inventory up 1,542,000 bbls
Distillate Fuel Oil down 1,955,000 bbls

I have been telling you for several weeks in my podcasts that gasoline stocks have been falling during refinery maintenance season and because refiners wanted to get rid of winter blend gasoline. Refiners have been ramping up production of summer blend gasoline for several weeks now, so this build in gasoline should not be a surprise.

BTW Crude Oil inputs to refineries in the U.S. have gone from 15,271,000 BOPD the week ending 2/17 to 16,938,000 BOPD the week ending 4/14. My forecast is that they will continue moving up to ~17,500,000 BOPD in May. BIG DEMAND for gasoline and diesel fuel is just a few weeks away and the refiners see it coming.
------------------------------
So here is my "SWAG" as to why oil prices fell today.
1. WTI had moved above the mid-point of a clearly defined pattern.
2. The "Speculators" who set the daily price tighten up their stop loss orders to lock in profits when oil moves above the mid-point of a clearly define pattern.
3. Anything not expected (i.e. a build in gasoline or slightly lower than expect decline in crude oil) can trigger a sell-off and automated sell orders are triggered.

The good news is that support at $50 held. At 1:05 ET the sellers moved in at $50.23 and ran WTI up to $50.85 by 5:45 ET.

As I write this, the "technical trading signal" has turned from "Sell" to "Strong Buy" for WTI.

An MBA student once asked me who sets the price of oil? The answer is "a bunch of greedy speculative traders" until the fundamentals step in.

Just in case you forgot: EIA weekly numbers are nothing more than Scientific Wild Ass Guesses ("SWAG") based on formulas. We won't know the real numbers for months.