January 28, 2010

Weak demand forced the market to a split decision as crude and distillate were basically sideways but up a little while gasoline was definitely down by over a penny and a quarter. Yesterday's very bearish report on higher than expected gasoline stocks revealed demand had not yet returned to even 2008 levels. The bearish news on crack spreads of less than $7.50 for both gasoline and distillate points to a major demand problem for products. Refinery shut downs and maintenance turn arounds cannot mask weak overall demand.

Low demand for gasoline is increasing gasoline inventories. This causes the futures slate of product and crude to move sideway or fall.

Today, crude +0.19 to $73.61, gasoline -1.29 cents to $1.9184, distillate +0.37 cents to $1.9191. Street prices stayed at $2.329.

January 27, 2010

Crude inventory was down but gasoline and distillate stocks rose. Most traders realized this set of events had to do with continuing stagnant demand that saw refinery utilization at 78.5%, barely moving up 0.1% as well as the Sabine Channel closure most of last week that cut back on crude deliveries. This is turnaround time for refineries and very few refineries will be stocking up on crude with decreased demand for product. Crack spreads are so low that crude runs are at the level of the fall hurricane season.

Just as bearish was the increase in distillate inventory. The fact that mid-section of the country is facing another series of winter storms and distillate demand is down indicates how few trucks are running and how few jets are flying.

Today, crude -$1.29 to $73.42, gasoline -3.92 cents to $1.9313, gasoline -3.92 cents to $1.9154. Best street price was $2.329, down 4 cents.

January 26, 2010

Yesterday's rise could not gain traction today and there were slight decreases in crude and distillate and a moderate drop in gasoline. Traders are still worried that China's new tight credit policies will slow manufacturing growth and dampen demand. The dollar's gain on the Euro also moderated any appetite for buying futures.

In the background of these day to day events is news that OPEC members are cheating at the rate of 1.75 million barrels per day. Crude in the $70 - $80 range is profitable for the cheaters but they are building supply for which there is not such great demand. Expect prices to fall again if the EIA's reports an inventory build.

Today, crude -$0.34 to $74.71, gasoline -2.58 cents to $1.9705, distillate -0.49 cents to $1.9546, street price +2 cents to $2.369.

January 25, 2010

Equities rebounded and the tanker collision in the Sabine Waterway inclined traders to buy higher today but only barely. Demand is still perceived as not to the level of even last year and supplies are plentiful. Traders are loathe to be holding expensive paper when demand is unlikely to increase.

Today, crude +$0.51 to $75.05, gasoline +2.74 cents to $1.9963, distillate +1.95 cents to $1.9595. Best street price today was $2.349, the lowest price in over a month.

January 22, 2010

There were many reasons for crude to fall today: The Obama administration's restrictions on financial institutions' risk taking, speculation that China was going to raise interest rates to slow growth, continuing weak total demand that mirrors a slumping economy and punctuated by this week's declining equities market, the likelihood that seasonal demand for distillate will now drop as we approach warmer spring weather, and larger than average stocks of crude and product around the world. There was a reason for everybody to sell rather than buy.

Today's prices were the lowest since crude hit $74.11 on December 22, exactly a month ago. The 10 cent drop in distillate is indicative of the overall economic problem. Economic conditions are such that not enough trucks and trains are running and fewer jets are flying. Refiners have been reducing inventory and cutting back on production and that has kept prices higher but still crack spreads are not generating profits.

For the week, crude -$3.42 to $74.54, gasoline -$0.0753 to $1.9689, distillate -$0.1049.

January 21, 2010

Prices fell today for crude and products as demand data, inventory levels, and refinery utilization rates were made public. Since Tuesday's close at $79, crude has fallen 4.1%. Prices fell even though national inventories dropped below the anticipated supply increase as it was realized all of the inventory decline was on the West Coast which is isolated from the supply stream of the rest of the country. Distillate stocks also fell but gasoline increased substantially over expectations insuring that there would be a lot of caution about investing in increased prices for abundant product. Prices continued to trade low when the bad economic news was revealed later in the day.

The fall of distillate is interesting because we still have at least another month of cold weather and distillate stocks have been falling. Traders have fixated, however, on average inventory levels and those remain higher than a twenty year average indicating abundant stock for weak demand. The fall in gasoline demand means people are driving their cars less. The relative weak demand for distillate means that fewer trucks are moving goods around the country and fewer jets are flying passengers since we have so far had a colder than average winter and heating oil demand must be up.

Today, crude -$1.35 to $75.80, gasoline -6.96 cents to $1.9769, distillate -4.01 cents to $1.981.

January 20, 2010

Crude rose for the first time in six sessions. The futures price still did not go above $80 and actually it is lower than even last Thursday's close. This price move is once again not about the fundamentals of the economy or supply and demand but about the movements of the stock market and the dollar. Monday's holiday will delay the release of inventory data until Thursday. Interesting to note that both products' increases were not close to crude's level.

Today's numbers: crude +$1.04 to $79, gasoline +1.57 cents to $2.0599, distillate +0.21 cents to $2.047.

Today's crude and distillate losses were attributed to the dollar's strengthening and the continued growth of crude and product inventories. The underlying economic conditions are the real problem. Demand is down and continues to deteriorate although there seemed to be demand growth in December as the unexpectedly cold weather and the falling inventories were thought to presage strong demand. This demand growth was really the sell-off of inventory for LIFO and tax purposes and once we entered the new year the true state of industry supply and demand became apparent. The true state of future demand is also now very apparent.

The International Energy Agency (IEA) revised its 2010 forecast continuing to project increased demand but lowering the percentage increase. Believe that this forecast will be revised further downward at a later time. This increased demand does not include refiner profitability in the first quarter in the US or worldwide. Profitability is obviously a function of demand and futures pricing that allows for profitable crack spreads but that has not been happening the past year.

For the week, crude -$4.69 (-5.7%) to $77.96, gasoline -11.05 cents (-5.1%) to $2.0442, distillate -14.46 cents (-6.6%) to $2.0449.

January 14, 2010

For the 4 consecutive trading session crude fell as has gasoline but distillate rose a penny today. Disappointing news on unemployment and retail sales are dampening the economic outlook and making economic and petroleum demand forecasts bearish. the seemingly sideways trading from yesterday was complicated because today was the last day to trade options and a lot of traders traded at $80. The next couple of days should be interesting.

Today, crude -$0.52 to $79.20, gasoline +1.04 cents to $2.0704, distillate -1.5 cents to $2.0784.

January 13, 2010

Reality hit hard today but crude only fell a little but there was more significant sinking of product futures. Inventory for product and crude rose where draws were expected. The tax and accounting efforts of the oil companies to get rid of inventory for LIFO and tax purposes were the real reason for five straight weeks of falling stock piles in late November and December. The first week of January showed unexpectedly large gains in oil supply and exposed really bearish numbers for the first week of the month.

It is expected that Asian demand will surpass US demand in 2010 but how can they grow if the US isn't importing their goods. Europe is expected to stagnate economically in 2010 and this will also dampen demand.

Today crude -$0.68 to $79.72, gasoline -3.07 cents to $2.06, distillate -2.95 cents to $2.0934.

January 12, 2010

The bullish news about falling inventories and increased refinery utilization was overshadowed by China's raising of reserve requirement to dampen national demand and prevent an overheated economy as well as the updated weather forecasts that predict rising temperatures and thus a fall in distillate demand. Worldwide demand is so much lower this year that falling inventories do not immediately mean a need to move prices up. Chevron earnings caution also has analysts and traders thinking a little bit more bearish as downstream losses were significant.

For the day, crude -$1.97 to $80.40, gasoline -3.22 cents to $2.0907, distillate -3.83 to $2.1367. It is a sign of really low demand when distillate falls this much in the middle of winter.

January 11, 2010

Crude reached a 15 month high of $83.95 before descending to $82.33. The dollar's fall and the warmer weather forecasts not just for North America but even China led to the increase. Cognizant of above average inventory levels for distillate despite decreased production and imports, prices finally settled lower than last Friday's close. Despite refinery utilization rates 15% lower than the average of the past 5 years, there is little concern for low supplies or even outages. Prices were also buoyed by China's report if increased imports.

For the day, crude -$0.32 to $82.33, gasoline -1.8 cents to $2.1367, distillate -1.45 cents to $2.1750.

January 8, 2009

The augurs reading the dollar, the economy, unemployment numbers, refinery closings, and all the other energy news stories today were predictably confused especially with the technicals calling for higher prices. Disappointingly bigger than expected unemployment numbers led to early trading in the mid-$81 range but the falling dollar and a problem at a Canadian refinery brought the number back to within a cent of yesterday's close. Both products saw price increases with gasoline leading the way.

I thought that prices above $80 could not be sustained during this full week of business and was proven wrong. There is a lot more optimism among traders than marketers. Refiners, struggling for survival, have been cutting back on production and drawing down on inventory. These actions led to the highest futures prices in 15 months. Prices may stay at elevated levels because of continued inventory draw and decreased refinery output.

For the week, crude +$2.82 to $82.65, gasoline +9.17 cents to $2.1547, distillate +6.6 cents to $2.1373. The gasoline number surprises because demand has been weak but likely reflects seasonal slates with greater distillate production.

January 7, 2009

The market is still watching the dollar and, as the dollar gained, crude fell. Traders were talking about the high reached yesterday of $83.52 and they may test $85 soon but the fundamentals are still bearish. How much China's economic numbers can be trusted to reflect growing demand for fuel remains a big question as is how can they grow if the American economy is not growing and the American consumer is not buying.

For the day, crude -$0.27 at $$82.66, gasoline -0.43 cents at $2.1373, distillate -1.42 cents at $2.1848.

January 6, 2009

Greenspan talked about irrational exuberance in the 90's and today's trading showed some of that absurdity. Crude inventories rose as imports increased. Gasoline inventory was also sharply up and predictably, because of the bad weather, distillate stocks fell but nowhere near the expected level. However, the dollar dropped and that alone led to ascending prices for crude and product. The technical traders and analysts couldn't be bothered with fundamentals. Today's increases will lead to greater volatility as demand outside of heating oil remains weak. Floating storage that is still out there was purchased at lower prices and makes these prices above $80 unsustainable.

Big fact to remember is that refinery utilization rates were below 80%. With turnarounds likely in January and February, these rates will stay low but they will also draw down on stock piles but real demand will still be low. Second big fact to remember is that gasoline demand and total petroleum demand declined last week.

For the day, crude +$1.15 to $82.93, gasoline +0.75 cents to $2.133, distillate +0.44 cents to $2.199.

January 4, 2009

Crude closed at its highest level in over 14 months due to very cold weather, the perception that economies around the world are improving, and falling stockpiles of distillate. Demand remains relatively weak and supplies will be lower throughout the next month or a little longer as refineries undergo annual maintenance. The weakening dollar also help to amplify crude's ascension.

For the day, crude +$1.66 to $81.49, gasoline +4.34 cents to $2.1064, distillate +5.98 cents to $2.1833.