Real time Monetary Inflation (last 12 months): 4.7%

Tuesday’s Desktop column (“Red Flag: Oil’s Faltering”) ended with a puzzle. Would today’s oil inventory numbers signal an end to oil’s attempt at another leg up?

In fact, January NYMEX crude oil held steady in the overnight market after yesterday’s buck and a half sell off to $76.02 a barrel. Much of last night’s buoyancy was due to short covering, as traders consolidated some of the week’s decline. benchmark West Texas Intermediate grade crude fell $3.70 a barrel, or 4.6%, since last Tuesday. NYMEX’s nearby crude contract is now testing its 50 day moving average at $75.26 a barrel.

Nearby NYMEX WTI Crude

Traders weren’t the only bears in the oil market this week. Energy Department would show a 1.5 million barrel build. The industry supported American Petroleum Institute guessed a 3.4 million barrel addition. As it turned out, Street estimates were closer to the mark. Energy Department figures show commercial crude oil inventories increased by 1 million barrels from the previous week.

The Street was looking for a modest 300,000 barrel increase in gasoline stocks, in line with the 1.4% year over year decline in gasoline demand reported by MasterCard (NYSE:MA). API estimated a 1.7 million barrel build. The government’s numbers reflected a middling increase of 1 million barrels last week.

Government figures show motor gasoline demand over a four week period, has increased 0.5% from the same period last year, while distillate fuel demand, including diesel and heating oil, is down by 9.5%.

Forecasts for distillate inventories varied widely this week. Oil Patch watchers thought stocks would remain flat or maybe get drawn down 100,000 barrels from the previous week’s levels, but API thought a more dramatic 2.4 million barrel off take was more likely. The Energy Department actually reported a 500,000 barrel draw in distillate fuel supplies.

NYMEX Product Cracks

According to the Energy Department, refinery capacity utilization rose 0.9 percentage points, compared with industry calls for a 2.6 percentage point increase and Street estimates of a 0.3% hike. Refineries actually operated at 80.3% of capacity last week, as daily gasoline production increased to an average 9.2 million barrels while distillate fuel production decreased to an average 4.0 million barrels per day.

Refining margins jordan 3 were fluid this week. Three jordan 9 month NYMEX spreads have widened to an average $2.40 a barrel vs. $2.07 last week. That’s created an enticing annualized cash and carry yield of 3.6% much better than credit market returns.

Technical indicators remain bearish for NYMEX crude. A break by the January contract below its recent low of $75 puts the 50% retracement level of this fall’s rally at $74.37 in sight of the bears. A close above Monday’s high at $79.92 would confirm that a short term low is jordan 5 in.