The Energy Complex: Ad Majorem Dei Gloriam

Despite the bearish API inventory report that was released yesterday showing that inventories of crude oil in the U.S. rose 4.9 million barrels compared to estimates of a loss of 1.3 million barrels ; crude oil prices are higher this morning.

Moreover, the EIA inventory report released today, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.4 million barrels from the previous week. At 432.4 million barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year.

Brent’s premium to WTI has narrowed in the July futures to $7.00/barrel this morning from $7.33/barrel yesterday. Despite the narrowing of Brent’s premium it is still quite wider than one week prior, when it was $6.07/barrel.

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In regards to the term structures, the averaged front month one year backwardation has narrowed since yesterday from $5.69/barrel to $5.62/barrel this morning. One week ago, the one year backwardation in WTI was $5.92/barrel.

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Therefore, despite the bullish headlines out of weekly EIA inventory report and the news out of Venezuela last week regarding the ConocoPhillips seizure of their assets from the PDVSA , with the term structure narrowing I remain cautious until the next OPEC meeting on June 22nd.

-R.W.N II

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