November 30, 2009

The market was back almost to where it closed last Wednesday before it was reported that Dubai wanted a six month reprieve on paying on its $80 billion debt for building houses of sand in the emirate. After falling almost $2 on Friday, the markets were calmed about how Dubai was going about getting its debt problem resolved or did Abu Dhabi agree to fully back the debt? The other reason prices jumped today was that Iran seized some Britons but that only shows that the Iranians are making a statement about their nuclear program.

For the day, crude +$1.85 and Brent was up $1.74 after rising above NYMEX on Friday. Gasoline really was high flying today at 7.4 cents at $2.000 while distillate was +7.4 cents at $2.0175.

November 24, 2009

Fundamentals were weighing heavily on the market today. Producers, refiners and large users sold their futures to avoid holding on to high priced inventories in a market with continuing deteriorating demand. The speculative traders have been talking up the market with talk of the improving economy despite the continuing job losses and falling demand. Facing $80 in the near term, industry users decided to start selling so as not to have expensive product sitting in tanks or tankers. Then today the Commerce Department revised GDP downward 20% and overnight Shanghai stock market fell at news that China's banking regulators were admonishing banks to stick to credit requirements including capitalization. Industry traders had to protect their companies.

For the day , crude declined $1.62 to $75.82, gasoline fell 4 cents, and distillate was down 2.9 cents. Tomorrow is inventory day, real action in the markets will await the government's report.

November 23, 2009

After all the excitement last week, today's trading day went sideways. Crude rose $0.62, gasoline stayed the same, and distillate fell 0.2 cents. This happened despite the dollar's decline and the Iranian military exercises which are being conducted to make the West and Israel uncomfortable. Unless there is some really big news event this week, the Thanksgiving holiday will restrain trading action.

November 20, 2009

Valero announced it will premanently close the 210,000 barrel per day Delaware City refinery. This follows Sunoco's earlier closure of the Eagle Point refinery and Western Refining's shutting down the Bloomfield refinery. Some industry executives are now saying that US gasoline consumption will never reach 2007 levels again because of the push for alternative fuels and stricter fuel economy standards. The real reason that these refineries were closed, however, is deteriorating levels of demand, down 3.8% this year compared to last year. The reason that crude futures are even this high has to do with speculative demand and not fundamentals. This is why it is hard to believe that the economy is turning around when demand continues to crater.

The shuttering of the Delaware City refinery is instructive because it fits the Valero strategic plan in that it processes heavy sour crudes. Six years ago at an OPIS supply summit in Vegas, when I was struggling to find supply in the Rockies, then Valero CEO Bill Greehey boasted he was buying heavy sour crudes for a discount of $12-$16/bbl and that all Valero's refineries were configured to process the heavy sours. Today, the discount is not enough to make Delaware City profitable. And as an Indy Valero has no crude sources. Refinery utilization is now below 80%.

We may be looking at a return to $60 crude if the economy continues to falter no matter what the Government says about 3.5% growth in the 3Q. A quick count of the three refinery closings shows a loss of 1,050 jobs not including contractors and suppliers to the refineries.

For the day, Crude -$0.72, gasoline +1 cent, distillate, awash in inventory, -2.2 cents.

November 19, 2009

$80 seems to be the new ceiling for crude. Since October 19 there have been numerous sessions that ended near $80 including this past Tuesday and Wednesday. The inexorable down draught of supply, demand, inventory, and utilization collide daily with the stock market and the dollar. Fuel demand is down 4.1% from a year ago. Inventories are 5.3% higher than a year ago and 3.5% than the five year average. Distillate stocks in particular are the highest they have been in eleven years. Obviously one of the reasons for falling demand is the high jobless rate now above 10.2% with an estimated 17% if you take into consideration those no longer looking or those who are underemployed and working part time or for significantly less than they used to.

For the day crude closed -$2.04 at $77.44, gasoline -4.1 cents at $1.969 and, no surprise, distillate with such high stockpiles -5.1 cents at $1.969.

November 18, 2009

The dollar fell, imports slumped, inventories declined, and refinery utilization dropped again but prices barely rose today. Crude was +$0.34, gasoline +$0.005 and diesel actually shrank -$0.011. Traders figured that last week's storm was responsible for falling inventory and imports and since utilization was down, no matter what was being said about the growing economy, demand was down 2% for the year.

November 17, 2009

Crude ended Tuesday's trading $0.64/bbl higher at $79.14 led by stronger demand for distillate that rose 2.4 cents to $2.0584 while gasoline followed suit 1.9 cents closing $2.0052. This happened despite a strengthening dollar but with a forecast for declining inventories. OPEC now says that production will not increase but there will be greater emphasis on quota compliance.

All await tomorrow's inventory report.