Darn, I was watching the wrong coast. The Energy Information Agency showed a big 5 million barrel drawdown in crude supply due to hurricane activity. The problem was that we were focused on the wrong hurricane. Or should I say hurricanes? All week oil traders watched with a mix of anticipation, angst and fear about the path of Hurricane Alex and its potential impact on oil operations and oil imports. Yet despite the fact that Alex did slow oil imports, it was two West Coast Hurricanes Celia and Darby that actually had more impact on the nations supply.
Normally storms in the West Coast and the Pacific do not catch the imagination of traders especially because the West Coast, while a big oil consumption market, usually does not impact the rest of the nation. The Gulf Coast on the other hand is the part of the country where the oil imports are the largest. Oil from the Gulf can get shipped via pipeline to other parts of the country where in the West Coast its imports feeds just their markets. So many assumed that when we saw that big 5 million barrel crude draw hurricane Alex was the culprit. Yet the truth is that is not the case. Total oil imports in the Gulf Coast actually increased from 5,183 million barrels to 5,529 million barrels. Yet in the West Coast they dropped from 1,406 million barrels to 1,131 million barrels. A much larger drop and a huge drop if you look at it as a percentage of total West Coast imports. It appears that Category 5 Darby and category 3 Darby played a number on the West Coast import market. A source from the Port of Los Angeles did say that shipping activity was down. So overall, the drop in the West Coast Offset what was pretty darn large import numbers and was a big reason we saw such a large crude oil draw. Overall U.S. crude oil imports averaged 9.4 million barrels per day last week which was down just 68 thousand barrels per day from the previous week.
There were other things of note in yesterday's Energy Information Agency report. We hit, what I guess, is a major milestone on the refining side as the EIA says that refining runs hit the highest level since January of 2008! Is that a real sign of an economic recovery? All right let’s not get too excited because we did not hit 90% but we came close. The EIA says that last week into the big 4th of July holiday that U.S. crude oil refinery inputs averaged 15.2 million barrels per day during the week ending July 2, 135 thousand barrels per day above the previous week’s average. Refineries operated at 89.8 percent of their operable capacity last week. Gasoline production decreased last week, averaging 9.4 million barrels per day. Distillate fuel production decreased last week, averaging 4.4 million barrels per day. The EIA said that led to an increase of total motor gasoline supply of by 1.3 million barrels last week and distillate fuel inventories increased by 0.3 million barrels, and are also above the upper boundary of the average range for this time of year.
How far above the average range? David Bird of Dow Jones says that U.S. stocks of distillate fuel are at the highest level for the week on EIA data beginning in August, 1982. In other words a record! Bird says that stocks are highest in any week since January 8. Stocks are sufficient to cover 40.44 days of current demand, which was 3.949 million barrels last week which was the most since May 28. As far as demand overall the EIA says that total products supplied over the last four-week period has averaged 19.3 million barrels per day, up by 5.1 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.4 million barrels per day, up by 2.0 percent from the same period last year. Distillate fuel demand has averaged 3.8 million barrels per day over the last four weeks, up by 15.8 percent from the same period last year. Jet fuel demand is 0.5 percent lower over the last four weeks compared to the same four-week period last year. There is no doubt there is some improvement in demand still it needs to continue to improve.
Still oil found inspiration from this report and a report from the International Monetary Fund that they expect the world economy will expand 4.6% in 2010. That is the biggest gain since 2007 before the great economic meltdown. The IMF had projected in April 4.2% growth rate. They are looking to faster growth in Brazil, China and India to lead way. It defiantly led oil bulls back into the market.
Yet the bulls abandoned natural gas. With storm threats in the Gulf of Mexico diminishing and a larger than expected 78 bcf injection, the market broke down for the second day in a row. We should get ready to fade the break on natural gas and fade the rally on crude.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org