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.