Oil supplies fall, but still at 10-year high

Andrea

And so it begins, the first tropical storm of the young season. Tropical Storm Andrea formed in the Gulf of Mexico. The storm and its track, while not expected to do any damage to energy infrastructure, there is no doubt it will have some impact on supply. In fact, as an example, you only have to go back to last week's Pacific storm Barbara that more than likely slowed imports into the West Coast adding to what was a big time drawdown in crude supply as reported by the Energy Information Administration.

The Energy Information Administration reported that crude supply plunged last week by a whopping 6.3 million barrels last week. That drop was dramatic but we still are ending the month of May with record supply for this time of year, but supplies overall are only at a 10-year high as opposed to the 81-year high last week.

Most of the fall was on the West Coast and the East Coast and it is likely that weather played at least some role in the drop. Tropical storm Barbara and tornados in Oklahoma problem impacted crude movements. Trains and ships don't move during storms. Andrea may keep some pressure on the Gulf Coast as storms usually slow ships down. U.S. crude oil imports averaged just under 7.3 million barrels per day last week, down by 549 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged over 7.7 million barrels per day, about 1.2 million barrels per day below the same four-week period last year.

U.S. crude oil refinery inputs averaged about 15.5 million barrels per day up from the week before and refineries operated at 88.4 percent. Gasoline production increased last week, averaging over 9.3 million.  Gasoline and diesel demand was strong as gasoline inventories fell by 0.4 million barrels distillate inventories increased by 2.6 million. Total commercial petroleum inventories decreased by 1.2 million barrels last week.

Yet Midwest gasoline problems continue to get worse. Bloomberg news reports that "BP Plc's Whiting refinery in Indiana won't be able to process heavy Canadian crude at full rates until 2014. Chief Executive Officer Bob Dudley said in the company's fourth-quarter earnings call. The largest crude unit at the refinery won't come back online until the middle of 2013 after it was shut in November for an upgrade to process less-expensive heavy oil, Dudley said. The other units involved in the project -- a coker, gas oil hydrotreater and sulfur recovery unit -- will come online in sequence over the following six to nine months."

"We do anticipate 2014 will be the first year we get the full benefits of it," Dudley said. The completion of work on the 225,000-barrel-a-day crude unit, known as Pipestill 12, was pushed back to between June 1 and Aug. 15 from the original estimate of March, a person familiar with operations said Dec. 14.  Canadian producers are counting on the Whiting conversion project to help relieve a glut of crude in Alberta that depressed prices there $42.50 below U.S. benchmark West Texas Intermediate on Dec. 14.  If the refinery takes six to nine months to start the coker after the crude unit is back online, that will mean it runs more light, sweet crude and less heavy, said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research consulting company in London. "This is more bearish for Canadian crude," Sen said. "They thought they were going to be able to send their crude down to Whiting in Q3, now it's going to be 2014."

The EIA releases natural gas report today!  Any build above triple digits will be bearish!

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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