October 31, 2009

It is All Hallow's Eve and we should look not just at the daily movement but the week's and the month's movements as well to see the trends.

Crude fell $3.04 in one day, lost $3.34 over a week but rose $6.39 over the September 30 close. This looks like definite movement. There is much talk of macroeconomic trends such as the loss of consumer confidence but demand and supply fundamentals had a say with refinery cutbacks and lower imports.

Gasoline fell 5.9 cents Friday over Thursday, declined 8.2 cents from last Friday, and rocketed 23.4 cents for the month. That is 8 cents better than what crude increased for the month if you make the barrel to gallon adjustments. The refinery strategy of cutting back on utilization seems to be working.

Distillate had a one day fall of 5.4 cents, a one week loss of 6.3 cents, but also gained 16.4 cents for the month. Here the numbers say that distillate is following crude. I would have thought there would be greater increases here because winter is around the corner and colder weather is expected for this winter.

October 29, 2009

What the market takes, it gives back. Yesterday, crude fell $2.34 and today it rose $2.64. The catalyst for the upsurge was the economic report that announced a 3.5% growth in GDP. Jobless numbers were also down minimally. This may be a jobless recovery and, if so, it would also be a demand-less growth economy. People at work and confident about tomorrow spend money and some money will be spent on fuel. No job, why take the road trip? Since so much of driving is discretionary, how much will be cut back?

Gasoline rose 3.2 cents and distillate also rose 6.2 cents.

The announcement by Argus that its Sour Crude Index will be adopted by Saudi Aramco to set prices for oil sold in the US is a move against the NYMEX benchmark based on the Cushing, OK, barrels. Is this movement away from Cushing and following a Gulf benchmark going to be able to help measure risk against volatility?

What about NY Harbor pricing for heating oil that is used to index all distillate?

October 28, 2009

Crude dropped $2.34, gasoline fell 8.4 cents, distillate decreased 5.75 cents after gasoline supplies rose 1.62 million barrels and crude supplies grew 800,000 barrels. Distillate is following seasonal inventory trends and increased but followed crude and gasoline futures prices up. Capacity was up 0.7% and gasoline production was 4.5% higher. This inventory and demand trend is what is worrisome to analysts and traders and begins to dampen the movement towards higher prices.

October 27, 2009

$1.19 up for crude, 2 cent increase distillate, 3.7 cent rise gasoline. Street price went down 6 cents yesterday and back up 3 cents today. Don't understand why street moved the way it did.

API forecasts draw on crude and products. Market paid some attention but everyone awaits tomorrow's government inventory report as the market takes greater account for the government numbers.

October 23, 2009

Crude fell for the second straight day going in inverse direction to the dollar but still rose 3.2% over last week's ending price. Distillate also lost for the second straight day but still was 2.8% over last week's Friday close. Gasoline rose above yesterday's loss and is 4% above a week ago. It was the decline in gasoline inventory that helped to cement the rise of crude and gasoline. The inventory decrease is not due to increased demand but because of reduced supply due to lower refinery utilization.

Interesting article in today's WSJ concerning falling natural gas prices and drilling that leads to lower production prices for crude. This helps producing companies but not refiners. Crack spreads are still lower than profitable which is why refiners are reducing utilization.

October 22, 2009

Crude down 99 cents, distillate minus 4.2 cents, gasoline falls 4.4 cents. New unemployment figures were up and the dollar was down. No talk of fundamentals only market movements. Street prices also went up 4 cents. OPEC talking about increasing production.

October 21, 2009

The significant decline of gasoline inventory pushed crude and product futures higher. Gasoline inventories recorded a tripling of the expected draw while crude supplies rose and distillate experienced the estimated draw. The fall in gasoline inventory is not attributed to rising demand but rather the decrease in refinery production and lower imports. Demand actually fell 1.4% last week and was the lowest in 5 months. The falling dollar is also given consideration in crude's rise.

October 20, 2009

Lots of people wished but very few believed that crude would actually break the sideways track of $65-$75, especially with the kind of strong upward push as we've seen in the past 9 days. The 45 cent drop at settlement time was greeted with almost relief by analysts who don't quite believe the good economic news. Tomorrow's inventory report is forecast to be a crude build and a product draw.

As noted in an earlier post, there seems to be significant storage of crude in supertankers. However demand has not shown any real signs of positive movement and refiners are not yet showing any appetite for increasing capacity.

October 19, 2009

The trend is definitely upward. Just 2 weeks ago, crude was settling at $69.66 and could have been headed any way including sideways but 8 trading sessions later the price is $10 higher at $79.60 and finished the third straight day above the $75 line. Distillate, as expected, is also up significantly 24.62 cents in the same time period while gasoline has risen 22.11 cents. Locally, street prices have risen 25 cents in the past week including 10 cents over the weekend.

Some news affecting prices:

• more supertankers are being chartered, no word yet on whether these supertankers are slated to move cargo or to serve as floating storage.
• 3Q economic data including industrial production is positive.
• China claims 9% 3Q growth.
• Demand is still not robust. Inventories are low because of fewer imports and refinery shutdowns. Economic growth and falling unemployment are the keys for greater demand.
  

October 16, 2009

The 31 cent increase in crude to $77.83 solidified an 8.5% ascent the past week. Technical analysts are now talking about $85 crude. Gasoline rose 19.8 cents or 11.2% in the same time frame. The draw on gasoline inventory last week has energized the market for gasoline and driven crude and products up. Despite this being the middle of October distillate almost seems in slow motion and moving in tandem with crude rather than being the prime mover of the market the way it normally is at this season. The draw on distillate inventory was so much smaller than gasoline's that inventory levels are still higher than the average of the last 25. The market may be misreading fundamentals because demand remains weak and only supply has been cut.

Listening to Los Angeles radio announce the average gas price in America's second largest city is at $3.02 made me appreciate the best local price at $2.26. What a disparity between the Gulf and the West Coast.

October 15, 2009

A decline in gasoline stocks powered a 3.6% increase in crude futures to $77.52. The decrease could have been foreseen as refineries have been idled due to deteriorating demand and unprofitable crack spreads. Refinery utilization is at 80% and crude imports are also down. Cracks are just above $5.

Distillate stocks also decreased but remain at 25 year highs. Gasoline followed crude and jumped 9.2 cents while distillate was up 7.8 cents.

October 14, 2009

Apologize for stating that inventories would be revealed today. Columbus Day, Monday, was a holiday in New York and EIA must also have taken the day off. Inventory will be reported tomorrow. Anyway, no surprise as street prices here climbed up several rungs on the ladder by 15 cents. Talk about waking up with a vengeance.

Lots of talk about how technicals are now pointing up to $78 now and then they'll point to $80 and then $85. Crude reached $75+ before settling at $74.81. I am not sure that is the real path because of inventory but we'll know better tomorrow. This crude futures price is still in the $65 - $75 range but there is irrational exuberance from traders about where prices are headed.

Distillate climbed 2 cents and gasoline was up 2.3 cents.

October 13, 2009

The official jobless rate is 9.8% and if the underemployed and those no longer looking are included in the unemployment statistics the jobless rate would be over 17%. Refiners are shuttering refineries because demand is declining and somehow traders and analysts are talking about an improved economy and trading up futures prices. Crude reached a 7 week high of $73.79 and distillate ended at $1.9146 and gasoline closed at 1.8215.

OPEC is doing its part to raise prices and has once again revised upwards its demand forecast for 2010. Technical experts are talking about resistance at $76 if the $75 level is pierced. Tomorrow's inventory numbers should give us an idea of where prices are headed as the Energy Department is forecast to show increased inventories of crude and gasoline. Inventories of distillate are higher than they've been for over 26 years.

Interesting note on street prices here as there was no movement. With all the rainy weather I wonder if the USTs were filled up over the weekend and retailers haven't yet refilled. Cooler wet weather in the north may mean more distillate use but in the south it may mean just less driving.

October 12, 2009

Despite mixed economic signals, crude rose 3% to the highest level in almost 6 months at $73.25/bbl but still remains within the $65 - $75 range in which it has traded the past 3 months. The IEA is forecasting increased demand for the rest of the year and into next year. It is hard to understand this optimism when Valero and Sunoco are shutting down refineries because of decreased demand and uneconomic crack spreads. There are some industry experts predicting crack spreads of $5 - $5.50/gallon at the start of next year and those margins are not tenable. Independents will be especially hard hit.

Distillate futures increased 5 cents and gasoline was higher by 3 cents. Street prices in the area did not move over the weekend although my grocery store loyalty card enabled me to buy gasoline at $2.059 yesterday.

October 9, 2009

Today is the 1277th anniversary of the Battle of Tours. Charlemagne's grandfather, Charles the Hammer and an army he raised by confiscating church property, defeated the army of the Umayyad emir of Al-Andalus, Abdul Rahman. The Hammer followed up with two campaigns that drove the Umayyads out of the Frankish lands for good by 739. As with the battle of Lepanto that occurred 832 years later, the winning army was greatly outnumbered, perhaps 3 to 1.

Back to today's news, crude fell 85 cents or 1.2% from yesterday's close but still gained 2.1% over last Friday's close. Distillate dropped half a penny and gasoline decreased 2.21 cents. The dollar's strength was blamed for crude's slight decline. Street prices only fell 3 cents this week, likely reflecting the fact that prices are artificially low in this sub-market.

October 7, 2009

A historical diversion as today is the 438th anniversary of the Battle of Lepanto when the greatly outnumbered Spanish, Venetian and Genoese forces defeated the Ottoman fleet. The Spanish general Don Juan of Austria was actually German (his mother was Bavarian) and was only 24 years old, having been appointed to his post mostly because his half brother was the Spanish king, Felipe II. Following up on the unsuccessful siege of Malta where the last of the knights made their great stand, this meant that the Mediterranean would remain open to European commerce. However, the cross-Atlantic trade was already more valuable to Europe than the trade routes going through Asia.

Crude fell more than $1 while gasoline dropped 4 cents and distillate declined 3.25 cents. Crude inventories decreased significantly but gasoline inventories were triple the forecast and distillate stocks are higher than they have been for over 26 years. The fall was actually $2/bbl as the early trading drove prices up to $71.76.

Refinery utilization was up slightly and seemed to indicate that refiners thought demand would be greater than it was. Even the technical analysts were saying that the trends pointed downward. The contango situation also encourages holding on to stock but there is a cost to holding inventory.

Not sure if EIA is being optimistic or unrealistic as they issued an upward revision to the demand forecasts for the remainder of 2009 and for 2010.

October 6, 2009

Crude remains stuck in the $65 - $75 range that it has been in since early August. The remarkable thing about product though is that gasoline is now 30 cents cheaper for the same price of crude while distillate is 7 cents below what it was in early August. This must be the effect of high inventories and declining demand. The day to day movements are great and some people make money playing the market in its ups and downs but if retail prices are falling and crack spreads are not really rising, nobody is making money.

It should be very interesting to find out inventory levels tomorrow. Also, the markets reaction to those levels.

October 2, 2009

Crude dropped 70 cents, distillate fell 3.15 cents, and gasoline declined 1.70 cents on news that unemployment increased unexpectedly. The talk of high unemployment recovery is really talk of decreased economic activity because unemployed people ahve little if any discretionary money and therefore they are not spending money. The continuing fall of distillate is a bearish economic indicator especially as we approach winter months. Distillate power trucks, trains and planes that move people and goods.

Interesting counter comment from ExxonMobil CEO Rex Tillerson about OPEC not being in as much compliance as was reported yesterday. Tillerson says that rather than being 82% compliance OPEC is in the 65% neighborhood because as prices approach $75 the temptation to cheat increases. Cheating would seem to be counterintuitive as it inevitably leds to oversupply and falling prices.

October 1, 2009

Crude moved sideways today while both products rose around 3 cents. Crude fell because of anticipation of a bad unemployment report tomorrow. Gasoline rose since demand seems to be increasing. Distillate rose despite the news that demand is declining and inventory is higher than any time the past 25 years. It is possible that the distillate crack will be lower than anticipated and production will be lower to meet demand and not continue this high level of inventory.

Of greater concern should be the news that independent refiners may fail to meet their credit requirements because of slumping demand and low crack spreads. It was bad enough that profits for the 3rd quarter were down 85% from the same period a year ago.

OPEC lived within its quotas for the second straight month leading to speculation that OPEC members find $65 - $75 pricing amenable.