Thursday July 21, 2016
Markets started yesterday on weaker footing, as the dollar followed up Tuesday’s strength with another new high. This put early pressure on the futures market, especially the RBOB contract which continues to be the weak point in the complex. However, despite lower prices early the markets reacted bullishly to the Department of Energy’s(DOE) weekly report.
In a rare occurrence recently, the DOE and API reports were relatively similar as both were highlighted by crude oil draws and gasoline builds. While the DOE’s report was mostly in line with expectations, the crude oil draw was slightly above expectations and markets caught a bid (despite overall levels continuing to remain elevated).
As mentioned earlier, gasoline moved opposite of the rest of the market Wednesday, which was partially the result of another build in gasoline inventories. The builds in gasoline inventories continue through what has been touted as one of the heavier driving season in recent times, as the retail flat price remains low and the economy is viewed in a mostly positive light. However it would seem that even this elevated demand from consumers is not enough to overcome the production from the refiner level.
DOE HIGHLIGHTS (more detail below)
- CRUDE OIL INVENTORY: -2.3 million Barrels
- GASOLINE INVENTORY: 911,000 Barrels
- DISTILLATE INVENTORY: -214,000 Barrels
Gulf Coast markets continue to be dominate by the gasoline end of the barrel. Yesterday, gasoline basis increased around .0175 for the CBOB and 75 points for the RBOB, as levels reach recent highs. Many rack values throughout the Southeastern U.S. are tied to these values, which may cause rack values to see some strength.
Thursday marks a scheduling day in the Colonial system for gasoline in the Gulf Coast markets. With the recent movement we have seen in the product and scheduling days usually increasing volatility, it will be worth watching this market closely.
- Crude throughputs saw a substantial increase for the reported week driven almost solely by the Midwest and the Gulf Coast (PADDs II and III respectively).
- The increase is slightly confusing as refining margins were weak and forward prices suggest they will remain suppressed for the near-term future at least.
- A spike in net inputs of crude could be refineries getting an early jump on boosting production before the upcoming maintenance period of fall.
- Distillate production ticked lower, but driven largely by PADDs IV and V which imparts much less impact on the east coast than the three PADDs we list.
- The minimal downward move still maintains the total production level just north of the five million barrels per day.
- Production of gasoline continued lower, albeit at a slower pace. The decline in gasoline production out of the Gulf Coast appears at odds with the fluctuations of the crude inputs and distillate production.
Commercial stocks of crude oil drew in line with API estimates, where the geographical breakdown lines up fairly well with the refinery demand (net inputs) as PADD III sourced the whole draw.
The draw down over the last two and a half months has been gradual and steady. Most in the market expect it to continue as such.
Distillate stocks drew marginally which ultimately appeared flat, but with large and offsetting movements between the PADDs, as the southeast (PADD I C) saw a more than 1.5-million-barrel build while PADD III drew nearly 2.5 million barrels.
The gasoline inventory built just shy of a million barrels, the small draw in PADD I is a start to help clean up the ballooned inventory levels that has continued to depress most markets in the East.
Published by PAPCO, Inc. (PAPCO)
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