Crude Report Stumps Analysts 16 comments
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U.S. oil refineries are still sluggishly producing fuels, at least by industry analysts' expectations. In fact, refining activity seems to have actually slowed over the past two weeks. Yesterday's Energy Department oil inventories report indicated domestic refiners utilized only 88.6% of their productive capacity last week. Insiders had expected refining capacity to top 90%, a 0.3% increase over the previous week's rate.
Crude oil stocks, which were expected to increase by 100,000 barrels this week, instead fell 4.6 million barrels. At 302.2 million barrels, oil inventories in the U.S. are below average for this time of year. For the week ending June 6, though, a quarterly backwardation of only 14 cents a barrel in the NYMEX term structure indicated oil's supply isn't considered all that tight by market participants.
Expectations about gasoline stocks were largely met by a 1 million barrel increase, though inventories are still below seasonal norms. Insiders anticipated a 1.1 million barrel uptick going into the week. Gasoline demand is still showing signs of slowing from last year's levels. According to the Energy Department, demand for motor fuel is down 1.3% from the same period last year.
Inventories of distillate fuels, including diesel and heating oil, surged 2.3 million barrels, well ahead of analysts' predictions of a 1.5 million barrel increase.
Both the U.S. Energy Department and the International Energy Agency lowered their forecast for global oil consumption for the year, but cautioned that demand continues to accelerate in developing nations like China.
Crude oil prices were higher ahead of the U.S. inventory report as the market adjusted to some of the week's volatile trade. Over the past week, an 8.3% hike in crude oil futures prices pressured the November/December NYMEX crack spread down to $10.91 a barrel, for a gross refining margin of 8.2%. The previous week, the gross profit margin was 9.7%.
The profit squeeze was reflected in a 9.7% decline in the share price of Valero Energy Corp. (NYSE: VLO) this week. Unlike larger oil companies like Chevron Corp. (NYSE: CVX) and ExxonMobil (NYSE: XOM), Valero's a pure refining play; the company isn't in the exploration and development business. Exxon's and Chevron's share prices rose 2.5% and 2.9%, respectively, over the past week.
NYMEX Nov./Dec. Crack Spread
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This article has 16 comments:
This is what is known as the Export Land effect - oil exporting countries have rapidly growing domestic consumption and stagnant or declining production dealing a double blow to net exports. Globally exports of oil are down some 2m barrels since 2005.
Astute observation about the refinery utilization rate. The notion that refiners expect a slackening of demand, or more particularly, a surfeit of supply, is bolstered by the shrinking backwardation and emergence of a contango in NYMEX spreads.
Thanks for your comment.
By decreasing refinery utilization (ie, decreasing supply of gasoline made), refiners can boost their profit margins closer to 10% (from about 8%).
Jack Yetiv
EXACTLY! Now you know why we run the crack spread figures on Hard Assets Investor (HardAssetsInvestor.com) every week. If investors would look at the oil business as a business, they can gain insight into pricing.
But even though refiners are slowing down, the supply of oil (in the form of imports) is slowing even faster.
As Saildog puts it, Ven/Mexico oil is in serious decline, so we are forced to buy more from further away across the Atlantic. That takes more tankers (something like a 5 to 1 ratio or higher - compared to gulf suppliers) to achieve the same flow. Those tankers dont exsist - so instead we just get less of the stuff.
In addition those suppliers are already selling everything they have to Europe and Asia, so we must compete for that oil - hence pressure driving crude prices higher.
The concept of Big oil fudging the stock numbers is entertaining. But the SEC strictly checks the books. The risks are too great. If Big oil really had that much power, why did they spend a decade languishing in sub $20 oil and flirting with banckruptcy?
Whats interesting to note, is that the EIA news last week (Wed June 4th) said much the same thing as the news Yesterday - June 11th. Yet the markets response was very different. Last week the market responded to the increase in gasoline stocks and weakening demand, and overlooked the crude picture. Then Morgan Stanley put them straight with a story about tanker traffic.
This week you could argue weve got noise from folks moving money around responding to the dollars movement.
You can only control demand by the prices you charge which are determined by the price the consumer is willing to pay.
I remember all the bullshit about - well, as supply increases the price will go down. Draw your own conclusions. We will pay whatever we have to and the suppliers now realize that and also realize they do not have to compete to make money. Ever wonder how it is or was that all the stations increased their prices the same amount and at the same exact time ? And when the price of oil went up gas prices immediately followed but never went down the same way ? Now it just goes up no matter what oil does. Remember LIFO & FIFO, competition, free markets, etc. ?
Miraculous how ALL those stations took delivery simultaneously the night before the prices changed the next morning. The whole process is very carefully orchestrated, is a monopoly and always has been especially since the independents have been forced out by the oil companies. I watched them doing it starting back in the 70's and they finally succeeded. Anybody have any numbers on how many independents are still around ? We know it, they know we know it, they have us by the balls and there's NOTHING meaningful we can do about it - at least in the short run.
And they know that too.
I'm having a hell of a time trying to figure out which one of my 5 Hummers I have to sell - gotta do my part as a good American - you know - like me & Arnold.
Moreover, who is paying them?
and why are they not yet unemployed?