0 for 4: Oil Analysts Surprised by Everything

By Brad Zigler

Apparently, it doesn't matter if your numbers are bad.

Analysts were 0-for-4 this week, missing the mark on three key inventory numbers as well as refinery utilization rates.

This morning's Energy Information Administration report showed crude oil inventories dipping by 400,000 barrels in the week ending August 8. The bean counters expected inventories to remain unchanged from the previous week.

Strike one.

At 296.5 million barrels, EIA says domestic oil supplies are in the lower half of the average range for this time of year. The crude oil market remains in contango. As of Tuesday's close, December NYMEX crude's premium over the September delivery was 87 cents per barrel. (Contango and its opposite, backwardation, are explained in "The Battle Against Contango").

 

Crude Oil Inventories Vs. Backwardation/Contango

 

Traders caught the scent of a more-bullish-number wind ahead of the report. Crude oil and the petroleum complex were steady to slightly higher overnight, with the $114-a-barrel level providing firm resistance for September crude, which opened its NYMEX floor session 44 cents, or 0.39%, higher. The United States Oil Fund (USO) opened 25 cents, or 0.27%, higher at $91.74 per share.

Refineries operated at a sluggish 85.9% of operable capacity last week, a much slower pace than insiders had forecast. Oil patch watchers expected utilization to remain unchanged at 87%.

Strike two for the analysts.

Gasoline production fell to an average of 8.9 million barrels per day. Distillate fuel output, including diesel and heating oil, also dipped last week to an average 4.3 million barrels per day.

The gasoline number was a real a curveball. Inventories shrank by 6.4 million barrels, leaving analysts' call for a 1.4-million-barrel drawdown in the dust. Retail investors had a clue, though. The lightly traded United States Gasoline Fund (UGA) opened 43 cents, or 0.80%, higher ahead of the inventory report.

That's strike three. Ah, but there's more.

Distillate fuel inventories declined by 1.7 million barrels according to the EIA. Oil patch watchers expected supplies to increase by 1.1 million barrels. Once again, the overnight market and the early going in the oil complex ETFs were better predictors. The United States Heating Oil Fund (UHN) picked up 8 cents, or 0.16%, to open at $49.54 before the inventory report was issued.

The spot crack spread (September NYMEX crude/October NYMEX products) stood at $22.61 a barrel Tuesday, for a gross refining margin of 6.7%. A week earlier, when crude prices were $6 higher, the margin was 6.3%. (For a background on crack spreads, see: "Time For Crack Spreads?").

 

NYMEX Crude Vs. Spot Crack Spread

 

On a related note, California-based driller Pyramid Oil Co. (PDO) opened sharply higher this morning following news of a 154% jump in second-quarter earnings. A pure production play, Pyramid's future earnings should be particularly sensitive to any further decline in crude prices.

Comments

[robc935:]

I follow the weekly reports and the "analysts" are wrong far more often than not, frequently in the completely wrong direction. Their prediction success rate wouldn't land them a job in the weather forecasting business. And they probably get paid far more than I do.

2008 Aug 13 08:08 PM

[fxtrader07:]

well, who is the gretaer fool? The fool (most analysts, at least when it comes to very short-term predictions) or those who follow the fool (all the short term traders).
All these weekly, or even monthly numbers and deviations don't mean sh!t in the larger scheme of things. Why anyone follows those numbers other than for the purpose of figuring out possible emerging or ending trends, is beyond me.

2008 Aug 14 04:25 AM