Oil should focus on demand destruction, not refineries

Enough with Refineries

Two refineries with more than their fair share of bad luck had issues that brought up gasoline futures off of their demand destruction lows. RBOB futures rallied when Bloomberg News reported that BP refinery in Whiting, Ind. will start work “imminently” to replace the largest of three crude units. They say that the work will temporarily reduce the refinery’s crude capacity by more than 50 percent, the London-based company said in a statement today. The refinery can process 420,000 barrels of crude a day, according to data compiled by Bloomberg. Also a fire at Texas City also helped increase the RBOB futures. BP Texas city reported a fire at either an hdro-treater or a hydro-cracker depending on who you believe. Gasoline production was likely impacted and now the fires are out. Maybe it was a hydro-trick-or- treater. I spoke to one industry insider who is getting the impression that BP wants to fix these refineries once and for all to avoid the problems that has caused gas prices in the Midwest to skyrocket all summer long.

As I have written before there are three phases in trading a disaster. The first is demand destruction, the second assessment, the third rebuilding. The US stock market that is getting ready to reopen is already focused on the rebuilding phase. The ultimate rebuilding will give the economy a boost and a boost to GDP. Obviously the Fed will continue to be accommodative and perhaps even more so, if that is even possible in the aftermath of this crisis. We are seeing a boost in the industrial metals and we should continue to see the hoped for demand growth on rebuilding. The funny part is that oil and gasoline may be the laggard. The API did release their figures and that could help support heating oil. The U.S. oil stockpiles rose 2.1 million barrels to 371.7 million last week, the American Petroleum Institute said yesterday. Crude supplies at Cushing, Okla., the delivery point for Nymex futures, dropped 659,000 barrels to 43.4 million.

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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.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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