Morning Petrospective – April 27, 2011
asoline prices established new three-year highs on Tuesday and they brought heating oil prices along for the ride. Crude oil, though, did not make the trip with the products. It did not stray far from Monday’s close, finishing only 7 points lower. The immediate cause of Tuesday’s contrary moves came from a power outage in Texas City, home to refineries owned by Valero (214,000 bpd), Marathon (76,000 bpd), BP (475,000 bpd) and a chemical plant run by Dow Chemical. That equals 765,000 bpd, roughly 4% of the nation’s capacity.
The power outage took all the refineries and plants down, but in the grand scheme of possibilities, a power outage is the most benign form of unscheduled downtime one could get. Unlike fires or explosions, nothing is destroyed and no one is hurt. Those are both positive aspects of this incident. From a purely market perspective, the outage was bearish for crude oil and bullish for refined products prices, and that is exactly what we saw. Gasoline prices have now been higher for four consecutive days, proving that the March to May seasonal is a gasoline phenomenon first and foremost.
That seasonal could end at any time, here. The most likely time for it to end is in the second half of May. Some years, the advance lasts straight through till October. Many years see highs in the second half of May, a selloff in June and then an advance from Independence Day until Columbus Day. Typically, though, in those years, prices do not exceed the May highs in October. Heating oil prices, on the other hand, tend to see their highs in October.
Traders are looking ahead to Wednesday’s DOE report and then to Ben Bernanke’s press conference. Right now, most people seem to expect that the Fed is finished with quantitative easing, but that it will be adamant about preserving the existing low interest rate regime. The bottom line is that he needs to move off the baseline with ‘winding down’ all of the counter-recessionary actions that have put the government debt load in new regions – but he cannot end up increasing the interest rates paid to service that debt or the government will be totally snookered. And, of course, the stock market and housing market would implode if he raised interest rates suddenly.
This week’s API report showed a build of 4.911 million barrels in crude oil, a build of 1.525 million barrels in distillate stocks and a draw of 2.088 million barrels in gasoline inventories. Crude oil imports increased by a whopping 1.904 million barrels, implying a huge increase in future run rates. Refinery utilization climbed 0.3% to 81.6%. Implied demand came in at 4.140 million bpd in distillate and 9.353 million bpd in gasoline.
The national average at the pump is getting frighteningly near the psychologically important $4.00 a gallon level that may believe is the threshold for significant demand destruction.
FMX Newswire
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Bentek Energy
- Industrial End Users Analytic Report – Industrial Demand Back Up.
- Supply Demand Balance Analytic Report – Golden Pass Testing, Canadian Imports Cushion Slight Production Drop.
- Canadian Oserver – Dawn Storage Region Likely In Full Injection Mode.
- Power Burn Analytic Report – Power Burn Expected to Post Nearly 2.0 Bcf/d of Declines by Friday.
Platts
- Eni'S Q1 profit climbs 22% to Eur2.22 billion, oil & gas production falls 8.6% on year to 1.68 mil boe/d.
- Squabbling Anglo-Russian oil# company TNK-BP's Q1 net income jumped 91% year-on-year to $2.438 bil, output up nearly 2% to 1.771 mil boe/d.
- Japanese refiners processed 3.23 mil b/d of crudel Apr 17-23, at a rate of 70%, compared with 72% the previous week, Platts analysis showed.
- China's plans to close refineries with crude distillation units of under 2 mil mt/year by end 2013 as it phases out polluting industries.
Bloomberg
- Crude Oil Advances as European, U.K. Economic Data Boost Demand Optimism.
- BP First-Quarter Profit Declines 4% as Oilfield Disposals Cut Production.
- U.S. Gasoline Imports From Europe Decline as Demand Erodes.
- Eni Posts First-Quarter Adjusted Net of $3.26 Billion, Beating Estimates.
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