Oil falls as supplies rise to record levels

Oil prices fall as U.S. oil supply rises to a record for as long as the Energy Information Administration has been keeping records. You have to go back almost 70 years to find a time when energy supplies were this high at this time of year. The reason is because of the continuing surge in U.S. and Canadian oil production and low crude runs as refiners are in maintenance.

The Energy Information Agency reported that U.S. crude oil refinery inputs averaged slightly over 14.0 million barrels per day during the week ending March 1 2013,480 barrels per day below the previous week’s average. Refineries operated at 82.2 percent of their operable capacity last week. Gasoline production decreased last week, averaging just over 8.6 million barrels per day. Distillate fuel production decreased last week, averaging less than 4.3 million barrels per day.

U.S. crude oil imports averaged over 7.3 million barrels per day last week; down by 650 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged over 7.6 million barrels per day, 1.3 million barrels per day below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 605 thousand barrels per day. Distillate fuel imports averaged 112 thousand barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.8 million barrels from the previous week. At 381.4 million barrels, U.S. crude oil inventories are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 3.8 million barrels last week and are near the lower limit of the average range for this time of year.

The bottom line is that the bottom for oil is not in yet. We should get a rebound, though, as traders look ahead to the summer driving turnaround. Yet the short term will be choppy. Try to take advantage of the ranges and do not marry a position just yet. Play the field.

Cushing, OK supply with the reversal of the Seaway has been all the rage, yet one reason we saw drawdowns in supply in recent weeks may be because of rail. Reuters News reports, “Oil traders have been perplexed by the changes in inventories at Cushing, Oklahoma. Simply put, the numbers do not add up. Fancy models of pipelines are not getting the figures right. But it seems there may be another factor: Trains.

“And behind them, energy trading giant Mercuria. Mercuria is among the companies quietly shipping some 40,000 barrels per day of crude oil sourced out of Oklahoma to destinations on the U.S. Gulf Coast, according to oil trading and rail industry sources. The oil, equivalent to about 15% of state output, may also include out-of-state crude delivered to Oklahoma tank farms, including those at Cushing, the delivery point for NYMEX West Texas Intermediate crude oil futures, trade sources said. Using short-line railway Farmrail, oil traders are sending 60 or more tank cars of crude a day to connections with other railroads, allowing Oklahoma crude to reach destinations such as Lake Charles and St James in Louisiana, a source familiar with the Oklahoma rail industry said.

“A standard oil tank car holds about 720 barrels of crude. Activity is so busy on the Farmrail line that new business is being turned away, the rail industry source added. Oklahoma crude has traditionally been piped to the tank farms at Cushing for onward sale to refineries throughout the U.S. Midwest."

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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