December crude oil has rolled into the front-month position on NYMEX, but the big news this morning was actually over in the gasoline ring. A much-larger-than-expected decline in gasoline supplies sparked a rally in the petroleum complex.

Motor fuel supplies decreased by 2.3 million barrels from levels posted last week, according to the U.S. Energy Department's inventory report. The drawdown is much greater than the 558,000-barrel off-take foreseen by the industry-sponsored American Petroleum Institute, and the 800,000-to-1-million-barrel off-take eyed by Street analysts.

Late Tuesday, the API also said that domestic crude stockpiles would likely rise by 3.8 million barrels; far more than the 1.3 million-to-1.8-million-barrel build foreseen by analysts. The report sent oil prices skidding lower overnight, as December crude fell to $77.64 a barrel before rebounding near $79 ahead of this morning's inventory report. The decline extended the daylight session's pull-back from a one-year peak.

As it turned out, though, the analysts' calls were spot-on when the Energy Department report indicated commercial crude oil inventories increased by 1.3 million barrels. At 339.1 million barrels, oil inventories remain well above seasonal averages.

Predictions for distillate fuel stocks, including diesel and heating oil, were closer to the mark this week. The government reported inventories decreased by 800,000 barrels following the API forecast of a 998,000-barrel drawdown and Street expectations of a decline between 800,000 and 1.3 million barrels.

Analysts were on target on their utilization calls, too. According to the energy agency, refineries ran at 81.1 percent of operable capacity, up slightly from last week's level. Gasoline production was flat at 8.5 million barrels a day, while daily distillate fuel production inched up to 9.0 million barrels.

The Energy Department reported that gasoline demand, at 9.2 million barrels a day, is up 4.2 percent from year-ago levels. Distillate fuel demand has averaged only 3.5 million barrels per day, down 12.1 percent from the same period last year.

U.S. Oil Inventory Vs. NYMEX Three-Month Roll

Last week, money managers turned more aggressively bullish, while commercials, swap dealers and other speculators either tipped more in the short direction or lightened up on their long exposure.

Traders took the entire petroleum complex higher this week. Nearby NYMEX crude gained 7.4 percent, while unleaded gasoline shot up 8.2 percent and heating oil rose 6.5 percent. 3-2-1 refinery runs still produced narrower margins than more distillate-heavy 2-1-1 operations, though the differential now isn't as great as last week's.

NYMEX Product Cracks

This week, the premium paid for West Texas Intermediate crude widened from $2.65 to $3.14 a barrel.

Meanwhile, crude oil's three-month roll narrowed this week to an average $1.42 a barrel. Last week's average was $1.57.

NYMEX Nearby Crude Oil

Chartwise, this is a pivotal period for crude oil. December crude's MACD and RSI indicators have turned choppy, though stochastics have turned up. We've seen sellers lurking at the $80 level, so resistance should be expected at Tuesday's high of $80.40, while support is likely today at $78.32.

*Note: The monetary inflation rate is calculated daily and represents the change in our proprietary index from this date one year ago. We update long-term inflation in real time as well. Since 1999, the compound annual growth rate in our index is 5.4 percent.