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Gold/Mining/Energy : Big Dog's Boom Boom Room

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From: Big Dog	5/4/2005 3:33:06 PM
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RBC Capital The Energy Information Administration (EIA) reported its weekly domestic crude and refined products inventory data. Investment Opinion Crude Inventories Are Up, But Not Necessarily Bearish For Crude. Crude inventories increased in-line with RBC's estimate of 2.6 MMbbls. Such a large increase is typical for this time of year as stocks increased to 20.8 days of forward demand from 20.7 days. Crude builds have likely hit an inflection point and historically inventory builds should steadily decrease as refinery production increases in May. Also of note, the crude build was focused on the West Coast, where inventories were up 2.0 MMbbls. A similar situation happened two weeks ago, when the DOE numbers reported a decline in inventories, but most reductions were isolated to the West Coast and therefore did not greatly impact the price of crude. Demand Is Strong And Refinery Inventories Low; Expect Increasing Crude Demand. This week's increase in crude was partially offset by a 2.6 MMbbls decline in unfinished goods, suggesting that refineries drew down their work-in-progress inventories over the past week. Given that unfinished inventories are now 5.7% below the five-year average on an absolute basis and 8.6% below the five-year average when factoring increased demand, we anticipate additional demand for crude by refineries in the coming weeks. This increasing draw on inventories will help offset rising crude imports and allow crude inventories to move down closer to the historical five-year average of days cover (20.1 days this time of year). Gasoline and distillate demand remain strong with implied demand 6.4% and 9.7% above the five-year average and 0.4% and 2.0% above 2004 levels, respectively. Oil Market Outlook. U.S. inventories appear adequate for now. However, the tight global supply situation and constrained domestic refining capacity are likely to limit downward price pressure. We expect crude prices to remain close to current levels (high $40s - mid $50s) for the next 2-3 months.

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