Thursday August 4, 2016
Front month WTI reclaimed the $40 market on Wednesday, as the market was led higher by a strong RBOB contract and by technical buying in defense of a dropping market. The Department of Energy (DOE) inventory report was moderately bearish overall, with an expected large build in crude oil stocks (again), though the market instead chose to focus on the very large gasoline draw. Recent comments by energy companies about refinery margins and operations indicate looming (or perhaps ongoing) run cuts, which should manifest builds in oil stocks (less demand) and draws in products (less supply). The DOE data yesterday matched that hypothesis, though it was only one week’s worth of data. Still, the market rebounded smartly from the dips earlier in the week, though it is certainly impossible to say the bottom has been found.
September WTI began Wednesday a little stronger, but the market was certainly quiet in anticipation of the mid-morning DOE release. The results of this week’s summary were as follows:
- Crude Oil – build of 1.4 MMbbls (versus expected draw of 1.4 MMbbls)
- Gasoline – draw of 3.3 MMbbls (versus expected draw of 0.2 MMbbls)
- Distillate – build of 1.2 MMbbls (versus expected draw of 0.5 MMbbls)
The gasoline draw was largely a result of strong demand, reported to be just south of ten millions barrels per day, but also because of a drip in production, which was less than ten million barrels per day. Oil analysts have recently coined a phrase of “Ten and Five”, meaning the reported daily refinery production of gasoline (ten million) and distillate products (five million), both of which are really unsustainable in light of sagging refinery (un)economics. This week’s DOE data showed less than “Ten and Five”. For a more detailed look at the DOE report, please read below.
After a few minutes of volatility, the market began to move higher (led by RBOB) and sustained that rally through the balance of the day. September WTI was up a dollar on the day by early afternoon and settled near its open-outcry highs of the day ($40.92, up $1.41). RBOB posted a four cent gain (cumulatively five cents in two days), while Heating Oil was up four cents. A little surprisingly, the RBOB structure was a tad weaker for the day (surprising in that the strength in the front was met, and exceeded, by strength in the back), though the gasoline market is still is much less backwardation (front stronger than the back) than normal for this time of the year.
- Net inputs of crude increased for the reported week, indicating a respite from the refinery issues plaguing the newswires. The weekly stats having been bouncing around the four week moving average.
- The majority of the increase came out of the Midwest and East Coast districts and PADD II (Midwest) is at the highest throughput level year-to-date.
- Distillate production ticked slightly upward. The trend of late for the distillate side of the barrel has been flat as we near the seasonal gradual decline into and through the fall period.
- Gasoline production added a good amount for the week, nearly all of which sourced from the gulf coast district (PADD III).
- Commercial crude oil stocks built, adding to the build of the prior week. This time of year typically sees crude draws as refineries try to pump out product ahead of going down for maintenance.
- Distillate stocks built which should temper some of the fears of the counter seasonal declines.
- The mid-Atlantic section of PADD I (B) saw a large decline which caused the east coast as a whole to draw.
- Gasoline stocks fell in the big three PADDs we track.
- The drawdowns are much needed to relieve the downward pressure from the oversupply that the market has been watching.