December 30, 2010

Fundamentals came into play today during a light day of trading due to the New Year's holiday. On this last trading day of the year, the market noted a build in distillate and a smaller than expected draw for crude. Gasoline inventory drew down as expected. Together with manufacturing data from China that showed a slowing of growth, this lead to a fall in crude and product prices from yesterday. Crude fell below $90 but this seems high based on available supply and the current level of economic growth. This is why the announcement of the lowest jobless claims in two years did not keep the price moving up. The harder number to explain is the distillate inventory build that is happening amid snowstorms and cold weather.

Having an annual perspective gives a better understanding of what happened this year. Crude +$9.99, 12.5% increase, $89.82; gasoline 32.82¢, 15.9% growth, $2.3912; distillate +36.1¢, 17% higher, $2.4845.

See you in 2011.

December 29, 2010

Analysts may be starting to wake up as to why inventories are falling this month and may not want to be holding expensive inventories next month when products start to build with lower priced product. Crude and product prices all went up. The news that consumer confidence and home values are down did nothing to help make prices increase. Prices are magnified this week as trading volume is low. Tomorrow's EIA report will affect the final settlement prices of the year.

Today, crude -33¢, $91.12; gasoline -1.77¢, $2.3904; distillate -0.45¢, $2.5215.

December 28, 2010

The fourth day of crude above $90 while gasoline and diesel have settled sideways. December retail sales were reminiscent of better economic times and gasoline demand has been improving lately. Some analysts are talking about inventory draws but by now everyone has been reminded of LIFO and year-end tax planning. Economic news is a mixed bag: prices for homes for sale are down, equities are up, fuel demand is picking up, but no one is sure about Chinese fuel demand and its attempt to dampen inflation.

Today, crude +41¢, $91.45; gasoline -1.38¢, $2.4081; distillate +0.0094, $2.526.

December 27, 2010

Is China's increasing of interest rates and deposit requirements a move that will curb inflation or will it do little to help their economy as it is only one quarter of one per cent?

Will the airlines ever make up for the planes that did not fly over the weekend? What happens to total diesel demand now that both shopping and trucking were greatly curtailed because of snow storms On Christmas Day and the following Sunday. The markets seem to think that that demand will not make up the lost product, relatively speaking.

The draw on inventories will also soon end as the new year will mean that the LIFO layers will start anew and inventories can reflect true demand. This may stop the increase of crude and and product prices or limit the effects of dollar devaluation.

Today, crude -44¢, $91.04; gasoline -1.71¢, $2.4219; distillate -2.42¢, $2.5166.

December 23, 2010

As we approach 12/31/10 and the final inventory of the year, refiners are paying close attention to inventory levels because of the LIFO rules and inventory layers and all the other tax valuation issues. Consequently, inventory has been drawn two weeks consecutively. Some analysts see this as positive signs that the economy is improving and demand is increasing. However, the housing sales numbers are half what they were forecast to do. At best And with the holiday season, many analysts have already taken off for the year and the number of trades are lower so that any movement seems bigger than it is. Nevertheless, crude has risen 3.9% in a week. Gasoline is already $3/gallon in some markets.

For the week (short week due to the Christmas holiday), crude +$3.46, $91.48; gasoline +12.12¢, $2.439; distillate +1.12¢, $2.5408.

December 21, 2010

Crude and products settled higher today as reports of high same store retail sales were published. Coupled with initial reports of tightening supply, this news made for very bullish activity today.

Today, crude +99¢, $89.80; gasoline +2.31¢, $2.399; distillate +2.9¢, $2.5178.

December 20, 2010

Initial U.S. Commerce Department GDP reports indicate an improving economy. It is important to remember that it is the initial report and every report in the past year has been adjusted downward but analysts overlooked that today and pushed prices up. Global cooling in North America and Western Europe is also impelling prices up. The period around the holidays see lower levels of trading and many moves now seem greater than they would normally be considered because trading is so light.

Today, crude +69¢, $88.81; gasoline +5.81¢, $2.3759; distillate +1.51¢, $2.4888.

December 17, 2010

The passage of the bill extending the Bush tax rates helped crude overcome the dollar's rise as it also climbed 32¢. Some traders were taking chances that the onset of colder weather may move crude and distillate prices higher but distillate fell despite crude's rise. Looking at the movements of the past week, price was slightly higher for crude and both products. The price movements this month seem to indicate that traders are wary of $90 but also believe that prices should not go down below $87.

For the week, crude +23¢, $88.02; gasoline +0.85¢, $2.3178; distillate +1.92¢, $2.4737.

December 16, 2010

Trading is light because of the time of the year and everyone is aware that refiners are cutting back on inventory because the end of the tax year approaches. Despite the news that there was a huge inventory draw, a review of the actual numbers showed that current levels are still above average of the past few years. The financial markets took precedence again today and with the dollar's rise came crude's fall.

Today, crude -92¢, $87.70; gasoline -0.49¢, $2.3043; distillate -0.72¢, $2.4763.

December 15, 2010

Crude inventories fell by nearly 10 million barrels but there was a build in gasoline and, surprisingly, distillate inventories. The year end valuation of inventories approaches since most of the industry uses LIFO and refineries were probably producing as much of product as could be forecasted to be profitable thus draining crude and building product. The futures gains for crude and products were quite modest signaling a market understanding of the accounting moves by refiners.

Today, crude +21¢, $88.62; gasoline +1.03¢, $2.3092; distillate +1.5¢, $2.4835.

December 14, 2010

The Nazis finally met their match in the outskirts of Moscow in early December 1941.
The rush to get to $100/barrel oil has hit a snag this December but it is not yet time to do more on that analogy. There are a number of activities that are leading against the rising to that price point. The inflationary quantitative easing is definitely in analysts' minds. U.S. gasoline demand fell 3%last week and gasoline futures dropped 0.8% at settlement with the release of that news. It is hard to talk about an improving economy in the light of demand decreases. Unlike the German advance led by Guderian, oil price increases are moving steady and there is no blitzkrieg to higher prices yet. With all the doom and gloom, retail sales are up and that is hard to configure with gasoline demand being down.

Today, crude -19¢, $88,41; gasoline -1.96¢, $2.2989; distillate +0.28¢, $2,4685.

December 10, 2010, part 2

The Chinese government is doing the right thing by trying to control inflation but oil traders saw this as slowing down the economy and reducing oil demand. Crude and product prices dropped and all eyes are now turned to the OPEC meeting in Quito, Ecuador. No major decisions are expected from the OPEC meeting but there may be indications of how the Cartel wishes to proceed.

For the week, crude -$1.40, $87.79; gasoline -4.28¢, $2.3093; distillate -2.99¢, $2.4575.

December 10, 2010

Sixty nine years ago today, Captain George McMillin, USN, surrendered on Guam, after a brief battle against Imperial Japanese forces. The were about 550 sailors, Marines and militia with a total of 12 automatic weapons matched against about 5,500 Japanese soldiers, fully armed with modern weapons. Isolationists in Congress led by Rep. Joseph Martin (R-Mass.) had opposed any defensive measures that would have armed the sailors, Marines, and militia and enabled them to give real resistance. Three militia men were beheaded near the Governor's residence in Agana.

Guam was initially bombed on December 8 at 8:30 a.m., three hours after Pearl Harbor was attacked. Some residents of Guam were unaware of the attacks on Pearl Harbor and were attending Mass at the Agana Cathedral as it was the Feast of the Immaculate Conception. The bombing attacks continued until ground trooops came ashore on December 10. The brutal Japanese occupation lasted until July 21, 1944.

December 9, 2010

Gasoline took center stage today as a Hess refinery in the Virgin Islands was shut down for unexpected repairs and concerns arose about gasoline supply. This 3.6¢increase was modest but pronounced and there was barely any movement at settlement foe either crude or distillate. The dollar was steady and many traders were sitting on the fence because of the OPEC meeting this weekend. Although there was an announcement that unemployment claims were slightly down, there was no reaction from the markets as there has been a tendency for those numbers to be revised at a later date.

Today, crude +11¢, $88.39; gasoline +3.6¢, $3.3406; distillate +0.69¢, $2.4676.

December 3, 2010

Inventory builds and rising unemployment could not overtake the falling of the dollar and crude went up $1.19 as it now begins to test the $90 ceiling. Even news that fuel consumption fell for the week ending November 26 could not keep crude from rising. Helping the bullish thinking are the future projections of $110/barrel and $120/barrel crude that sees increased demand and therefore these higher prices.

For the week, crude +$5.43, $89.19; gasoline +14.18¢, $2.3521; distillate +17.62¢, $2.4874.

December 2, 2010

News of an improving economy and the fall of the dollar versus the euro led analysts to ignore oil fundamentals about supply and demand and caused crude and both gasoline and distillate to escalate in today's trading. Crude is now trading where it was over two years ago when prices were falling rapidly. It is now rising in fits and starts but steadily rising since October 1 and staying in the $80s.

Today, crude +$1.25, $88.00; gasoline +5.49¢, $2.3553; distillate +4.9¢, $2.4546.

December 1, 2010

It was Wednesday but you could not tell that there was a crude and gasoline inventory build as crude rose 3.1% in one day because favorable U.S. employment numbers, an expansion of Chinese manufacturing, and news that the IMF would support European efforts to address the sovereign debt problem of Italy, Portugal and Spain.

Today, crude +42.38, $86.75; gasoline +5.04¢, $2.3004; distillate +9.71¢, $2.4056.