Oil drawdown as U.S. becomes gasoline exporter

A surprise drawdown in gasoline supply as the U.S. becomes an exporter of more products and refiners sink deep into seasonal maintenance. Strong data out of China helped offset concerns about European sovereign debt. Add to it a weak dollar and you have created the right condition for an energy rally. Also of note, China has now surpassed the United States as the biggest consumer of Saudi oil yet we may see some slowing as China takes steps to bring down exploding property prices.

Inventories seemed to be the major driving force for yesterday steady methodical rally. The EIA reported that motor gasoline inventories fell by a shocking 3.5 million barrels last week even as gasoline production increased to 9.2 million barrels a day and refinery runs scrapped the bottom at 85.8%.It is clear that the U.S. is exporting more gas and diesel as demand stagnates here and is robust in other places. The EIA shows that four moving average for gas demand is averaging 9.1 million barrels per day which is up just 0.9% from last year’s percent from the same period. Yet, gasoline supply fell as refiners look overseas.

The U.S. is now a net gasoline exporter for the first time since 1961. Reuters News reported today, "US oil refiners are shipping fuels to foreign markets to restore profits battered by sputtering domestic demand, signaling a historic shift in the global oil trade. Gasoline-guzzling Americans have cut consumption while emerging markets, including nearby Latin America, have seen demand grow beyond the capacity of local refineries. That has prompted U.S. plants to revive an export-oriented merchant model dormant for 50 years." Reuters goes on to say, "Top oil consumer the United States is close to becoming a net oil product exporter for the first time in decades. This would have been unthinkable during the 1990s and 2000s, when U.S. gasoline demand rose in every year but one. Exports have doubled since 2004 to a record over 2 million barrels-per-day (bpd) this year, according to the EIA. Exports are becoming common for some refineries. Nationwide, net refined product imports slid to 85,000 bpd earlier this month from around 3 million bpd in 2005, EIA data showed. But experts say only the most nimble and best-situated U.S. refiners can compete for export markets with merchant plants in Asia and Europe, due to a surplus in world refining capacity. Some U.S. plants, they warn, still face the threat of closure."

China of course is a major factor in the global demand picture for oil. The Gas and Oil Daily reported that China's imports of oil from Saudi Arabia will increase 19% from last year to 50 million metric tons in 2010, the official Saudi Press Agency reported. China overtook the US as Saudi Arabia's largest buyer of oil this year. Oil also rose as the dollar fell to an 8-month low against a basket of currencies. The Dollar Index, which tracks the currency against 6 major peers, fell 0.3% to the lowest level since January. Overnight Dow Jones reported, "Crude oil futures fell in Asian trading as new measures adopted by China to bring down high property prices damped enthusiasm for a government report showing U.S. oil and fuel inventories in decline." They said, "Oil prices weakened in Asia after China ordered banks nationwide to halt lending for third and subsequent home purchases, at the same time as raising the minimum down payment for all first-time home buyers. The statement from the State Council, China's cabinet, also said the government aims to speed up a trial reform of a "real estate tax" now being carried out in some cities.

Consumption of products such as bitumen, which is used in road building, has soared after Beijing ramped up capital spending last year to cushion the impact on its economy from a sharp slowdown in exports to the U.S. and Europe. This has contributed to China's oil demand exceeding market expectations in 2010 so far. However, Beijing was expected to introduce more tightening measures after consumer prices rose 3.5% in August, and speculative activity began to intensify again in China's property market." Oil looked impressive yesterday but is getting close to the higher end of the trading range! Oil has failed on many attempts to take out eighties so the bulls cannot get too excited. Fed Chief Ben Bernanke, an oil bull's best friend, speaks today so any insight on future quantitative easing will be critical for this market!

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 pflynn@pfgbest.com.
About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


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