Yesterday morning's U.S. Energy Department report on oil and fuel inventories left fewer pundits and analysts scratching their heads, at least about crude oil stocks and refinery usage. Forecasts for crude oil stocks and refining capacity utilization were dead-on this week. The other numbers? Eh, not so good.

Crude oil stocks dipped 1.2 million barrels over the past week, keeping supply below seasonal norms. Refineries ran at 89.3% of capacity, ahead of last week's 88.6% utilization rate. Refinery inputs of crude oil rose modestly over the week as gasoline production remained flat and distillate fuel production - that of diesel and heating oil - decreased.

Gasoline stocks, which had been forecasted to rise by 800,000 barrels, dropped instead by 1.2 million barrels. Inventories, already below seasonal averages, aren't being built up by refiners who saw demand this past week decline 1.8% from year-ago levels.

Distillate inventories jumped 2.6 million barrels, well ahead of an expected 1.8-million-barrel increase. Demand for distillates, stickier than that for gasoline, is off only 0.4% from the same period last year.

Ahead of the Energy Department report, July NYMEX crude oil opened 16 cents lower at $133.85 a barrel following higher trades in the overnight market. Technicians pointed to a pennant flag formation on crude's daily chart, a usual precursor to volatile trade. The United States Oil Fund (AMEX: USO) opened 7 cents higher after finishing yesterday's session at $106.68 per share.

Pennant Flag On July NYMEX Daily Chart

Heating oil spent the night trading lower, which followed through into this morning's session. The United States Heating Oil Fund (AMEX: UHN) opened 12 cents lower, at $62.05 per share, today.

Unleaded gas was also lower overnight and on today's opening as bearish sentiment prevailed among investors in the United States Gasoline Fund (AMEX: UGA). The exchange-traded fund was off 19 cents a share, beginning the day at $63.37.

Traders looked for cues from the foreign exchange market before lining up their orders for crude oil this morning. The dollar took a hit yesterday when the euro shot up four-tenths of a cent to $1.5439. Euro traders took some profits off the table overnight, though, allowing the euro to slip. Technically, the euro hints of a short-term low in the making, though the buck remains entrenched in a longer-term uptrend. Figuring in the euro's impact on oil prices, about $47 a barrel, or 35% of oil's current price, can be attributed to dollar depreciation over the past three years.

Nearby one-month NYMEX crack spreads ended yesterday's floor session at $15.48 a barrel for a gross margin of 11.6% (see "Time For Crack Spreads?").

The July-October quarterly contango narrowed 28 cents a barrel yesterday after ballooning to $1.60 Monday. With that, crude started the week at a contango level not seen since January 2007. Variations in this spread have been roughly paralleling the trend in gross refining margins recently.

• Are Oily Characters Behind Crude's Price Move?   »
• Just a Commodities Correction - Not the End of the Bull (Part 2)  »
• The Economic Consequences of Falling Oil Prices  »
• U.S. Energy Weather Update  »
• Valero, Tesoro: Margin of Security in Refinery Assets  »

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