So much for the sell-off.  Oil prices are back on the march higher, after reversing course Wednesday following the DOE’s weekly report and ending any talk near term of a breakdown of the bull rally.  The rebound is a bit puzzling from a purely fundamental perspective as the DOE reported the first US oil inventory increase in nearly 3 months, and the highest oil production levels in 47 years.  Refined products did have larger than expected inventory draws thanks to a sharp reduction in refinery runs and above-average demand, helping to diminish the bearish headlines for crude.

10 year treasury yields hit 2.75% Wednesday for the first time in nearly 4 years after the FOMC left interest rates alone, but predicted higher inflation levels for 2018, setting the stage for additional rate hikes this year.  While there may not be a direct impact on energy prices, the indirect influences are numerous – from day to day movements in the US Dollar, to the increased costs of capital that will impact essentially all portions of the physical supply chain.

Refined products are faring well as demand estimates remain above average for this time of year, while production is declining – led by a sharp drop in Gulf Coast refinery runs as plants catch up on maintenance they delayed last fall in the wake of the hurricanes.  It’s worth pointing out that in spite of 4 straight weeks of sharp declines, taking 1.6 million barrels of refinery throughput temporarily offline, total US refinery runs are still above the 5 year range for this time of year, and nearly 1 million barrels/day above the 5 year average.

In addition to the normal weekly status report, the DOE released another monthly outlook yesterday highlighting that total US oil production broke 10 million barrels/day in November for the first time since 1970.

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Charts from the DOE weekly report