Thursday August 18, 2016
A bullish Department of Energy (DOE) inventory report was just another reason for the recent renaissance to continue, as oil prices again edged higher to post new, six-week highs. Oil has risen by seven dollars off of its "summer blahs" low, and with the Calendar 2017 WTI strip now above $50, there might be enough incentive for producers to begin hedging next year's production. Near term price action will again be dictated by macro news (OPEC) and by investment money flow (in this instance, short covering). The September WTI contract, which expires Monday and thus is winding down in trading action, is very near a strong resistance level ($46.80); if it breaks through that number, it might be a fairly quick run to $50.
Aside from some new and notable refinery problems in the Gulf Coast (see below), the focus on Wednesday was the mid-morning DOE report. The results of this week's data were as follows:
• Crude Oil - draw of 2.5 MMbbls (versus expected build of 0.5 MMbbls)
• Gasoline - draw of 2.7 MMbbls (versus expected draw of 1.6 MMbbls)
• Distillate - build of 1.9 MMbbls (versus expected draw of 0.7 MMbbls).
Refinery runs rebounded last week, leading to the oil draw, but that also led to the "10 and 5" of product supply (ten million barrels of gas production and five million barrels of distillate production). Still, gasoline drew by a large amount (including the Northeast) because of very healthy demand and a big dip in imports. For a more detailed view of this week's DOE data, please read the synopsis below.
Prices were generally lower, pre-DOE, but jumped soon thereafter to move into the black. WTI was steady for most of the day, with fundamental strength met by technical resistance (the aforementioned $46.80 mark). The day's price activity was more about the products (RBOB and Heating Oil) than WTI, and the September WTI contract posted a twenty-one cent gain on the day (settling $46.79, right at the technical number). RBOB and HO posted the same exact gain (up 2.79 cents), with more strength in the front of each contract (expanding the gasoline backwardation, narrowing the heat contango).
Flooding, fires and mechanical breakdowns are causing a bit of havoc with several refineries in the Gulf Coast. Cash differentials were up across the board on Wednesday (roughly two cents each for gasoline products and diesel), reflecting supply fears into the Southeast. The strength was really only seen in the very front (first few pipeline cycles) and not farther down the curve, meaning the market expects the supply issues to be a short term issue. Still, with summer gasoline supply dwindling, anyway, we may see ever more near term volatility at the rack level for gasoline.
- Crude throughputs continued the whipsaw trend for the fifth consecutive week. The four week moving average trend appears as though it is turning downward as we are on the cusp of turnaround season.
- Expectations are for throughputs to fall off in next week’s numbers as refinery after refinery has reported issues or been taken down whether from fire or flooding water in the gulf PADDs II and III should see declines in their inputs.
- Production of distillate fuels bounced back from the prior week’s surprisingly low level and is back at the same level reported two weeks ago.
- Gasoline production has steadily been climbing and appears as though it wanted to test the 10.45 million barrel production level it set nearly two months ago. It will be tough to achieve as we near the maintenance season.
- The increase in products is somewhat expected after one views the increase in crude entering the refining process theoretically you should see an increase in the output too which we are.
- Commercial crude oil stocks fell more than double what the API claimed was “unexpected”. The draw came from PADD V which is essentially an island from the rest of the country as the Rocky Mountains act as a barrier and skew commodity trade flows.
- The quarter of a million barrel per day increase of refining demand did little to impact the stock levels as the trend of imports has been gradually rising and domestic crude production has been flat and ticked up 150mbpd for this last reported week.
- Distillate stocks pivoted higher for the week primarily located in the gulf (PADD III) and the mid-Atlantic (PADD I B). The total stock level is above the historical five-year average and hovering around levels untouched this time of year since 2011. But the flat and even declining trend this time of year has been unseasonal and is an interesting note to watch.
- Stocks of gasoline have taken on a rapid drawing trend nearing purge status in a graphical context. The Midwest (PADD II) was the artist of the week with lovely drawings (could also call it the Ledecky of the group as the second place was three body lengths away)
Published by PAPCO, Inc. (PAPCO)
PAPCO Newsletter Disclaimer. The information that is published in this newsletter, including the market reports, is derived from trade, statistical, and other sources that we believe are reliable and accurate. However, PAPCO does not guarantee the completeness, accuracy, or reliability of such information, and information should not be relied upon as such. Additionally, PAPCO assumes no responsibility for the material contained in the newsletter and the views expressed therein. Further, PAPCO expressly disclaims any express or implied warranties or guarantees with regard to such information. The information contained in this newsletter and any views expressed herein are provided for your informational purposes only and should not be interpreted in any way as an offer, invitation to make an offer, inducement, or recommendation to buy or sell options contracts, commodity futures, products, or any other type of security.