Oil Guesses Getting Better, Still Off

By Brad Zigler

Pundits and oil analysts were collectively off the mark on this week's big number: crude inventories. Stocks, which had been projected to rise by some 100,000 barrels last week, instead tumbled 2 million barrels to stay below trend line averages.

August crude oil opened 18 cents a barrel higher on NYMEX this morning after rising slightly higher overnight. Oil closed Tuesday's floor session 97 cents higher at $140.97 after profit-taking cooled the market's early advance. The United States Oil Fund (AMEX: USO) finished Tuesday 93 cents higher at $114.59 a share. For the week ended Tuesday, NYMEX crude futures gained nearly $4 a barrel, or 2.9%. USO picked up $3.65 per share, or 3.3%, for the week. Bloomberg's survey of two dozen oil analysts and traders was split in their forecasts of this week's futures market. Nine respondents, or 38%, said prices were likely to rise, while, 11, or 46%, were banking on prices declining. The remaining four respondents were neutral.

The crude oil market's quarterly contango in the nearby months rose 58 cents per barrel over the past week. Contango is a premium commanded by a contract calling for later delivery of a commodity, largely reflecting storage and financing costs. Its opposite, backwardation, prevails when supplies are perceived to be too tight to justify storage.

Crude Oil Inventories Vs. Futures Spreads

Refineries operated at 89.2% of their capacity last week, fairly well in line with prognostications of an 89.1% ratio. Capacity utilization ramped up 0.6% over the previous week's level. Gasoline production fell last week as well as the refining output of heating and diesel oil.

Guesstimates for gasoline stocks were way too conservative, though. Inventories jumped by 2.1 million barrels against expectations of a 100,000-barrel increase. Still, gasoline supplies remain below average for this time of year. Over the last four weeks, motor gasoline demand declined 1.7% versus year-ago levels.

Projections for distillate stocks, including heating and diesel oil, were much closer to the mark. Inventories rose 1.3 million barrels last week, putting supplies squarely in the middle of seasonal tendencies. Analysts had expected a 1.7-million-barrel upswell. Distillate fuel demand has softened 0.5% over the past four trading weeks, compared with the same period last year.

Heating oil futures were slightly higher overnight following gains made in Tuesday's floor session. Technically, the heating oil market seems poised to attack the $4-a-gallon mark on the August chart, though prices lagged during the week compared with crude and gasoline futures. Nearby NYMEX heating oil rose 9 cents a gallon, or 2.3%, for the week ended Tuesday. The United States Heating Oil Fund (AMEX: UHN) rose $1.74 a share, or 2.8%, over the last five trading sessions.

Overnight gains in unleaded gasoline futures followed Tuesday's bullish floor session as the market consolidated a 1.1% or 4-cent-per-gallon gain for the week. Futures' gains were bettered by the week's 1.4%, or 89 cent-per-share, uptick in the United States Gasoline Fund (AMEX: UGA).

Counting the modest rises in gasoline and heating oil futures, the nearby NYMEX crack spread was whittled down a penny to $13.42 per barrel, yielding a gross refining margin of 9.5%. A month ago, the margin was 14.4%.

NYMEX Crack Spread And Refining Margins

Oil traders are watching the U.S. dollar for cues as they await a decision by the European Central Bank to tinker with lending rates. If the ECB raises rates, the dollar will likely slip further against the euro and bolster oil prices.

Ongoing jawboning about possible attacks planned on Iran is also keeping the market jumpy. As OPEC's second-largest exporter, Iran figures large in the global supply picture. About 40% of global oil exported by tankers passes through the mouth of the Persian Gulf.

Comments

[mangolfer]

Alot of guessing, (usually wrong), but the price still goes up..... I guess I'll buy a hydrogen car!

[happycajun]

Good move golfer - you will save a bundle - you'll never find a place to pay to fill 'er up! H2 is not an energy source, it is means of storing & transporting energy. H2 does not occur in nature (at least not here on earth - the sun has a bunch, but tough to transport here). The abundant stores of hydrogen in the form of H2O are nice, we need that too. However, to free H2 from the molecular bond to oxygen requires an energy input equal (in an ideal reaction) to that produced when burning H2. Assuming perfect efficiency - a zero sum game.

H2 could be used to store locally surplus electricity (or sunlight, wind, etc) and to transport that surplus to a location where it is in demand. Whacko inventors have been pursuing the perpetual motion engine for generations - thermodynamics says they will continue the pursuit... I won't invest in alternative energy models that don't show an energy balance, and a detailed breakdown of cost of production. Were any of the inputs is based on data not adjusted for some "steady state" energy cost/value assumption - that business model is valueless. Aside from the lack of infrastructure, I have seen no realistic H2 business models that make scientific sense yet. Lessez le bon temps rouler!

[Fritz]

And who is supposedly going to supply hydrogen in the future? Big Oil. Thanks but no thanks, I'd rather put up with the short comings of having a 100 mile range EV for local use. In fact I'd like to have a RAV4-EV which accomplished everything I do with my current car with plenty of range.

Unfortunately the battery tech is owned by Chevron and they won't license it. Look up "patent encumbrance". Big oil bites us again. The patent runs out in 2010 so expect to see a few EVs reach the road then using what will amount to ten year old battery technology... That is to say that a NiMH battery powered car is possible and useful and economical NOW but big oil and big business wants to force you to buy what they sell, not what you want to buy.

With that in mind we have made some choices - we drive two small cars as little as possible (we still have plenty of fun) and we do this by living in a small town of 50K people where everything is ten minutes away from home.

HappyCajun is correct about hydrogen. The best analogy to hydrogen is steam. Steam may move a vintage locomotive but it is not the fuel - it is the energy carrier.

I want gasoline out of my daily life completely. I concede we'll need it to go see grandma and indirectly gas or diesel will move goods to the stores where we shop. Even there we are cutting back by trying to by what we can locally and I am planning a garden next year.

Yeah, some folks think I'm a bit odd disavowing the standard issue suburban lifestyle with copious consumption but let's face it - sustainable development is the only future we can have where we have good lives and our kids' futures are safe, healthy and happy ones. I don't want my kids to grow up in a world unsafe because of constant wars and riots over shortages. We're going down that path now. No thanks.

FWIW we live in a normal neighborhood in a normal house of 1800 sq ft with a 7 mile commute to work. No space domes or pedal cars at my house. Ten year old cars with a/c and power accessories.

[User 221674]

Whatever. You can call me a conspiracy nut, but the whole oil situation is obviously being controlled by someone. It's obvious because they are raising the price for any reason available. If there's too much supply they reduce the price by a few cents. As soon as there's ANY inclination of short supply, it goes up by whole dollars. And when the supply corrects itself, the price does not correct itself. LIES LIES LIES. This oil problem is about many things. But all of them together are a perfect manufactured storm. Who will ultimately control the remaining supplies for the "good of the world". The puppeteers are worried we are going to run out of oil, so they are staging this scenario to justify eventual population and citizen control methods under the justification of our individual global citizenship responsibilities to do whatever they tell us in the name of saving the planet. The green movement is part of it. The decline of the US dollar is a part of the plan as are all the other factors. The biggest companies and governments in the world have pulled together in a global movement, with what appears to be a mission for humanity. But they are playing a game with the kind of variables that are way beyond what they can control. God is already revealing to all of us that the direction our leaders are taking us is very very wrong. Despite every efficiency we create in the name of capitalism, we somehow end up with even more problems heaped on us that just weren't there before. You gain efficiency by having your cell phones and blackberries with you all the time. But somehow you can't seem to keep up with even the normal everyday things you're sure you used to have more time for. That's God doing that. Let's see what happens next...

[cal48koho]

Why is it that virtually every week no matter what the inventory status that the controlling adjective is "unexpected"... The rise up or down is always unexpected. If that is indeed the case, how do these folks have jobs?

[Maximo]

User, with all due respect God has nothing to do with these problems they belong wholly to defective humanoids.

[fran]

CAL48KOHO--

the reason is: said volumes are inconsequential pieces of information in the worldwide market place. the pieces of meaningful data are the broad world volume trends, the cash market, the crises mentality of the broad market[shutdowns, weather, wars/invasions, etc].

these figures do give CNBC, Bloomberg, FOX personnel something to babble on to occupy showtime. for this audience appeal there is a meaning,

[bill d]

And we all know He created them on the 8th day - right ?

[paultaut]

Yup, Yup, and Yup.

Thank you for allowing Man to construct the Internet and giving us the ability to shop on line.

Think of all the Money Congress will raise by slapping taxes on all Internet Purchases, the States will add more Taxes. But if you avoid having to travel, then it will still be worth it to the Consumer.

My pick for the next Google is Amazon. Let it drop and stabilize during the coming Financial Institution blood bath. Mark to Market has not yet had its day in the Sun.

[crudeoilcrackhead]

"God is already revealing to all of us that the direction our leaders are taking us is very very wrong." User 221674
Wait, what? I could have sworn we were talking oil here.

[fireball]

maximo you are right. men made the problems. i think the Allmighty is laughing in derission as the little human would be oppressors scurry about. though He did not create the problems eventually He will say enough is enough.it will be a very rough ride for humanity but God will step in before we destroy ourselves and His planet completely. He will let us taste what we have wrought first. i read the end of the book.