The Department of Energy released its Weekly Status Report on petroleum inventories this morning, with preliminary reports indicating we would see a large drop in crude oil inventories.

The report was released a short while ago and indicated a loss of 3.8 million barrels of crude oil in inventories last week, a drop of 1.1%. This week, crude stocks are just 20 million barrels higher than they were last year, a drop from the 55 million barrel difference we saw in August.

(READ MORE!) Gasoline inventories rose 2.2 million barrels last week, leaving them nearly 6% higher than a year ago, and the highest level since early-October. However, gasoline demand has increased 1.2 million barrels per day over the last four weeks compared to last week.

Refinery utilization also rose to 81.1% of capacity, but the majority of the increase in utilization likely reflects the recent shut down of a large refinery in New Jersey rather than significantly more product being produced.

The bigger picture, however, shows that total oil demand in the U.S. stands at 18.5 million barrels per day, 3% lower than the same period last year. It reflects the reality in this market that oil demand remains lower and does not support any significant increase in prices.

Expect oil prices to remain between $67-$76 for the next few weeks as this news could add a bit of support to the current price of oil. Expect gasoline prices to continue to slowly fall as stockpiles increase and demand drags. It's important to note that even with refineries closing and demand changing, there is plenty of spare capacity. You can bet OPEC will want to keep oil prices where they are now as well to prevent demand destruction in the future.

UPDATE: I should add that a reason why crude inventories dropped is because the end of the year is approaching and refiners are eager to draw down inventories for accounting and tax purposes. We'll likely see decreases the rest of the year and then see increases in January.

Second update- I see a lot of you asking about oil stored in ships at sea. Since this oil could be re-sold and shipped anywhere, it would not be valid to include it in inventory reports for the United States. According to sources, the volume of crude oil stored in tankers globally has dipped to between 25 million and 31 million barrels, according to estimates from several ship operators. This is down from Spring numbers when an estimated 105-plus million barrels were in storage at sea, when many more companies were booking ships to store oil.