Morning Petrospective – August 19, 2010       

e had a mixed session on Wednesday, with crude oil and heating oil prices lower and gasoline prices higher for September and October deliveries, but lower in deferred months. Judging from the close, one might be inclined to believe that we had bearish DOE figures for crude and heating oil and supportive figures for nearer deliveries of gasoline.

Of course, it is rarely that easy and in the case of this week’s DOE report, it was not that cut and dried. Gasoline stocks were lower, but just by a small amount. Analysts had been expecting a larger drawdown. And refinery utilization increased, suggesting more supply in the pipeline – nearby – but possibly not necessarily longer-term.

At the same time, there was a build in distillate stocks, but it was slightly lower than expected, giving it a bullish tint. And crude oil stocks were down on the week, but not by as much as had been expected, and that was bearish. Refinery utilization increased by 1.9% to 90.0%, and that has to be considered bearish for refined products and supportive for crude. Putting together a scorecard from those facts, we have a positive and a negative factor in both crude oil and heating oil (stocks and utilization) and we have two negative factors for gasoline, with a smaller draw and a bigger increase in utilization. The scorecard would not have given us higher gasoline quotes and lower prices in heating oil and crude.

Demand was higher for both refined products, and the supply-demand equations swung 548,000 bpd to the demand side in distillate (demand up 274,000 bpd, output down 98,000 bpd and imports off 176,000 bpd). Gasoline’s balance was 53,000 bpd to the supply side (demand up 223,000 bpd, but output up 155,000 bpd and imports up 121,000 bpd). Based on those figures, we would have been buying heating oil contracts and selling gasoline futures.

And if we look at the inventory comparisons against a year ago, all three major categories had bearish developments in this week’s report. The crude surplus, year-on-year, grew from 3.0 million barrels to 10.6 million barrels. Distillate stocks increased their surplus from 10.5 million barrels to 12.6 million barrels. And gasoline’s year-on-year surplus grew from 11.5 million barrels to 13.5 million barrels. All of those changes mean that we now know about larger surpluses, year-on-year, than we knew about before this most recent report was released.

This week’s DOE report was substantially at variance with the week’s API figures. The API reported a large increase in crude oil imports a week ago and then rectified it with a large decline in this week’s numbers. The DOE reported an increase of 188,000 bpd in last week’s report and followed it with an increase of 12,000 bpd in this week’s report.

Traders sold prices lower after this week’s statistics first came out. The session’s lows (at $73.83 in crude oil) came shortly after the report was released. This week’s report showed oil inventories at their highest levels in 27 years, since they started keeping them. As the day wore on, a rally in equities and short-covering helped to cut into the day’s losses. There seems to have been more short-covering in gasoline than in the other two, although we are having a hard time identifying a specific reason why that would have been the case. The DJIA finished with a gain of 9.69, so it was not really a major rally. And the dollar was higher, removing that as a probable factor in the rally seen later in the day in the oil complex, generally, and in gasoline, specifically. Our best candidate as a reason for the later rally was oversold pressures technically.

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Platts oil

• China's apparent oil demand in July rose 2.6% on the year to 35.83 mil mt as a rise in crude throughput offset a drop in net product import.
• PetroChina plans to build a 3.5 million mt/year LNG receiving terminal in Shenzhen and is awaiting government approval for the project.
• Indian Petronet, GSPC to add new storage tanks at Dahej LNG terminal.
• US warns ships transiting the Strait of Hormuz following an alleged attack on a Japanese-owned supertanker last month.

Bentek Energy

• Texas Observer – Heat Continues to Drive the Texas Market
• Gulf Coast Production Analytic Report - Production Down 151 MMcf/d in Evening Cycle For Today's Flows
• Power Burn Analytic Report – Fuel Switching Continues to Gain Ground as Cash Prices Decline
• Supply/Demand Balance Analytic Report – 32 BCF Storage Build Expected on Today’s EIA Release

Bloomberg 

• Crude Oil Rises as Chinese Equities Gain, Improving Fuel Demand Outlook
• Asia Tops Europe First Time on South Africa Coal Imports
• Asia Fuel Oil, Gasoil Swaps Rise After Crack Spreads Strengthened: Wrap
• Cnooc First-Half Profit Doubles, Beating Estimates, as Output Surges 41%
• Shell May Spend $50 Billion in Australia Over 10 Years Amid Shift to Gas
• Carbon Profit Grows on Trees as Kiwi Farmers Ditch Sheep

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