Oil Market: Wholesale vs. Retail

By Brad Zigler

Normally, Wednesday's column is devoted to gauging the ability of Oil Patch analysts to handicap the weekly Energy Information Administration inventory reports. Well, the analysts have their numbers ready, but the Feds don't. The Veterans Day holiday set the gum'mint guys a day behind, so we won't see the oil and product stockpile numbers ‘til Thursday.

This gives us a unique opportunity to take the measure of the dozen worthies regularly harpooned in this space with an intervening market day.

Let's start with crude oil. December crude oil closed at $59.33 a barrel Tuesday, off $3.08 or 4.9%. Losses were extended in the overnight market, leaving technical indicators flashing bearish signals for the near term. The United States Oil Fund (AMEX: USO) finished Tuesday's floor session at $48.11 a share, off $3.12, or 6.1%.

This morning, December crude oil began the NYMEX floor session off another 48 cents, or 0.8%.

Weakening market prices have apparently been factored into the green eyeshade types' call for a 750,000-barrel build in crude oil stocks for the week ended Nov. 7.

NYMEX Spot Crude Oil

Product Picture

December heating oil and RBOB gasoline were also lower Tuesday, in overnight trading and on the open this morning. On Tuesday, the United States Heating Oil Fund (AMEX: UHN) and the United States Gasoline Fund (AMEX: UGA) closed 4% and 4.5% lower, respectively.

Forecasts for distillate fuel stocks - including heating oil and diesel - call for a 1-million-barrel build for the week ended Nov. 7. Gasoline inventories, say the analysts, should have increased by 200,000 barrels.

Technical signals for both product sets remain bearish, though not to the extent of crude oil's indications. Crude oil's fallen nearly 16% since the last EIA report; wholesale gasoline's declined more than 14% and heating oil's eased almost 11%.

The steeper decline in refining feedstock prices has improved the nearby crack spread by $1.62 a gallon over the past week. At yesterday's close, refiners' profit margins implied by NYMEX futures were $5.68 a gallon, or 9.6%. A week before, refiners' unhedged margins were just 5.8%.

NYMEX Refining Margins

Fade Retail Traders?

As oil prices skidded this fall, commercial traders steadily lightened up on short positions, reflecting growing doubts about the extent of future price declines.

A new report from the International Energy Agency, in fact, indicates that crude oil prices may have fallen too far. Given current production costs, the agency says $80 a barrel needs to be realized to ensure future supplies.

On the retail side, small speculators have turned as bearish, as they were back in May 2007, just before crude prices began a yearlong march to record highs. The sentiments of retail traders are often used as a contrary bellwether by market professionals.

Maybe it's time for retail traders to rise above the herd to look for buying opportunities.

Net Crude Oil Open Interest