Oil Prices Rally Despite U.S. Inventories At 30-Year Highs

???? Today’s Spotlight Market
Front month Brent Crude continues to trade above $100 per barrel, although its premium to WTI Crude has fallen sharply the past few months. This “global” benchmark grade is seeing weaker energy demand from Europe, as well as increased supplies coming from North Africa producers, especially Libya, which is a major oil exporter to Europe.

The opening of additional pipelines to move Oil out of storage in Cushing, Oklahoma, the delivery point for the NYMEX WTI futures, is also helping to tighten Brent’s premium to WTI. The EIA reported a decline of 652,000 barrels of Crude from Cushing last week, which kept storage levels below the 50 million barrel level for the second consecutive week.

???? Fundamentals
The WTI Oil price rally is like a cat with 9 lives, with continued talk of its demise due to huge domestic supplies and lower demand having failed once again to kill-off the bull market. The front month June futures are trading at 1-month highs, with prices holding near $96 per barrel despite the latest report from the Energy Information Administration (EIA) showing U.S. Oil inventories at over 30-year highs.

The EIA reported that U.S. Crude inventories rose by 230,000 barrels last week, which put Oil in storage at 395.5 million barrels. The last time the U.S. had this much Oil inventory was back in April of 1981. Though analysts were looking for an even higher inventory build, a nearly 7% drop in Crude imports accounted for the lower than expected increase. WTI prices have also seen support from the continued unwinding of long Brent Crude and short WTI spreads, as Brent’s premium has narrowed to under $8 per barrel from over $20 per barrel earlier in the year.

Though we are seeing mixed data out of China regarding the strength of its economy, Oil imports rose in April to 5.64 million barrels per day, up 0.2 million barrels per day from April 2012. The gains in Oil prices are not yet translating to the Oil products, as weaker demand for both Gasoline and Heating Oil are keeping prices well below the highs seen back in February of this year.

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