Weekly US oil data -Algorithm-induced momentum:: Macquarie Research

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Weekly US oil data
Algorithm-induced momentum
Fundamental strengthening behind wildly gyrating oil markets
As currency markets reversed their overwhelmingly bearish view of the US dollar
one fine day last week, oil markets were swept along in the commodity
downdraft. That they bobbed back up to the surface and almost retraced 50% of
the plunge in two days to start this week is, we believe, testimony of the building
bullish momentum in supply/demand fundamentals of global crude oil markets.
Algorithmic trading is serving to add to further volatility as markets break sharply
through technical levels.

And then today, a very bearish looking set of weekly numbers in the US helped
trigger another major sell off. This time it was the abrupt end of a multi-week
parabolic gasoline trade and another bounce in the US dollar that are pushing
WTI back down toward last week's lows. Brent is still a few dollars above those
low water marks. More importantly, through the madness, the time structure of
Brent futures, specifically their steep and steepening backwardation are to us
proof positive of tightening global fundamentals. We will get further color from
this week‟s batch of March data released by the IEA.
Top three numbers in today’s weekly US oil data
 Crude oil inventories added +3.8mbs – The build was concentrated in the
Gulf and West Coast regions. Levels at Cushing, OK grew +1.1mbs and
remain just off the recent record high.
 Downstream stocks surprise upward, again, +2.6mbs, as inventory builds
in gasoline and „other products‟ (+1.3mbs and +2.7mbs, respectively)
surpassed a -0.8mbs draw in middle distillates drew lower.
 Demand growth turns negative at -0.5% (four week MA, y/y), driven by
declining demand for both transport fuels and stationary fuels.