Oil inventories steady despite pipeline leak

Projections

9/14/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs Proj.

Crude Oil

(2.5)

24.6

42.1

Gasoline

(1.0)

16.5

27.6

Distillate

0.5

7.6

31.9

Ref Change Level

-0.5%

0.8%

0.8%

Utilization %

87.7%

86.9%

86.9%

With runs expected to decline and demand slowly waning, I am expecting a modest decline in gasoline stocks and a small build in distillate fuel. Gasoline stocks are expected to decline by about 1 million barrels on a combination of carryover from the Labor Day holiday weekend in the US and the result of a 0.5% decline in refinery utilization rates. However, the year over year overhang will still be around 16.5 million barrels while the surplus versus the five year average for the same week will be at 27.6 million barrels. As I have discussed in previous newsletters, not only is the industry plagued with a huge surplus of gasoline in inventory, but stocks continue to remain above the level they were at prior to the start of the higher demand summer driving season in the US.

Distillate fuel likely built by about 500,000 barrels as economy sensitive diesel fuel implied demand continues to decrease and follow the slowly developing downtrend that has been in place since about May of this year or around the same time the US economy began to slow down. Implied distillate demand peaked in mid-May at a tad over 4 million barrels per day and has declined about 10% since then. I would categorize this week’s oil inventory snapshot as biased to the bearish side is the EIA data is in sync with the projections. As usual, do not overreact to the API data which will be released late this afternoon as more often than not it is not in line with the more widely followed EIA data.

The tropical weather situation is continuing to change but there is still nothing threatening the oil and Nat Gas producing region of the US Gulf Coast as shown in the following graphic (5 AM NOAA update). There are now three events in play. As shown on the graphic, the event sitting in the Caribbean west of the Windward Islands has been downgraded today to a medium probability event or 40% chance of forming into a tropical cyclone over the next 48 hours. In addition Tropical Storm Igor is now Hurricane Igor while a new tropical storm has formed over the weekend out in the eastern Atlantic named Julia.

Both Igor and Julia are projected to move west and then turn very early in their lifespan into the Atlantic and definitely out of harm’s way of the sweet spot in the Gulf of Mexico. However, it is still too early to determine whether or not either of these two storms will impact the East coast of the US (not a threat to oil supply). The last event slowly evolving in the Caribbean still only has a medium chance of strengthening to a tropical cyclone over the next forty hours and, even if it does strengthen, it is very unclear if it will work its way into the Gulf. As it appears in the graphic (and the results of several computer models) it looks more likely to be heading into Mexico rather than the northern Gulf. At the moment the tropical weather activity remains a concern but not one that warrants investing any trading capital.

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