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By Robert Rapier on Nov 22, 2007 with no responses

Why Oil Prices Defied Expectations

Happy Thanksgiving to all! It was a normal work day here in Scotland for me, which stinks. But I am now home, the turkey just came out of the oven, and soon I will be sitting down to watch the Dallas Cowboys on my Slingbox. What a great invention that thing is!

A lot of people – including me – were very surprised that we didn’t break through the $100/bbl barrier on Wednesday. After all, analysts had expected a large crude build, and instead there was a large draw. Given that on Tuesday night WTI had traded as high as $99.29 – and as nervous as the markets have been – I thought $100 was a sure thing given the bad news.

Yesterday’s OPIS report has an explanation for why traders may have discounted the news:

Crude oil overnight traded up to $99.29/bbl, but only got as close as $98.70 during the pit session even after the DOE reported a draw in crude oil inventories. However, a closer look shows that Cushing crude oil stocks grew by more than 1 million bbl. After yesterday’s big gains, today’s losses were relatively minor in scope with the January contract settling at $97.29/bbl loss of 74cts.

Crude oil inventories dropped by 1.1 million bbl last week, but a look at the Cushing stocks, the NYMEX WTI delivery point, inventories grew by 1.2 million bbl. A large chunk of the drop came on the Gulf Coast as stocks there fell by 1.9 million bbl, but the stock draw could be a result of a decent sized drop in crude oil imports. Crude imports fell to 9.82 million b/d a drop of more than 600,000 b/d.

The report also raised concerns over distillate supplies:

While most of the attention this holiday weekend will be placed on gasoline prices and the driving public, it’s the retail price of diesel that is setting all the records and global tightness is contributing to strong heating oil futures.

Distillate demand over the last four-weeks has been red hot and is running some 3.2% over the same time last year. Sources tie the strong demand to exports heading mostly to Europe from the East Coast and Gulf Coast as refinery glitches across the Atlantic have opened the export window.

East Coast heating oil inventories last week saw a drop of 1.4 million bbl as the first real cool weather headed into the Northeast. There is cause for concern if there is an extended cold snap as current East Coast heating oil inventories are nearly 9 million bbl behind the same time last year.

I’ll worry about that tomorrow. It’s turkey time.