Hey, nobody leave! This party is not over! Fed official wanted to make it clear that while Fed Chairman Ben Bernanke may have said we are getting closer to "last call" there is going to be plenty of punch to keep the party going. New York Fed chief Bill Dudley led the chorus of Fed officials that its party on and that helped bring down those rising bond yields and brought back oil and products despite tons of supply. In Fact Mr. Dudley went as far as saying that the Fed normally is overly optimistic on its economic projections, so what is everybody so worried about? So forget that puking gold, deflation is still a risk and the party is not over even if one commodity seems like it had too much to drink. The market’s "out of sync" and the market over reacted to the Chairman's comments, and there may be even more punch later on if needed. So party hardy like the train load of Chicago Blackhawk fans I was with on the train in this morning! If the Fed could bottle that enthusiasm we could power the economy for a generation.
The stock market is acting like the party is just getting started. That is bringing oil up; who you know always loves a good party. Forget that over supply and weak demand, a party is a party — so party on dude.
Distillate demand and gas oil in Europe seems to be supportive as stronger than expected. Asian demand may play into the stock market mania. More QE may also calm emerging markets that seem more dependent on the Fed than the United States at times.
I got a lot of reaction on my piece about Midwest gas prices. Good news today for the Midwest, both the Citgo and the Whiting Indiana crude unit is back online. Barbara J. Powell of Bloomberg reported that BP Plc has begun starting the converted crude unit at its Whiting, Indiana, plant, which will allow the largest U.S. Midwest refinery to process mostly heavy crude from Canada. Scott Dean, a BP spokesman in Warrenville, Illinois, said in an interview today that the crude unit remains on schedule to be brought online by month's end. The 250,000-barrel-a-day crude unit and a new delayed coker will allow Whiting to process as much as 85% heavy Canadian crude from about 20%, according to the company's website. "We are in the process of starting up and we expect to continue the starting up and to bring it online in the second quarter," Dean said. The six-drum 102,000-barrel-a-day delayed coker and a gasoil hydrotreater will support the crude unit at the 420,000-barrel-a-day Whiting refinery. The entire project is on schedule for completion in the second half of this year, Dean said. The new crude unit will initially process mostly light, sweet grades until related units like the delayed coker are completed and upgrades are made to existing units to maximize production, a person familiar with the project said on June 6, declining to be named because the information isn't public.
The Whiting unit's startup using light crude will help reduce supplies in Cushing, Oklahoma, the delivery point of domestic benchmark West Texas Intermediate, narrowing WTI's discount to North Sea Brent crude. As the crude conversion, which began in November, nears completion, the discount of WTI on the New York Mercantile Exchange to Brent on ICE Futures Europe has narrowed. The discount, based on August contracts, was $5.89 a barrel at 12:58 p.m., versus a 2013 high of $23.18 on Feb. 8. Cokers convert heavy refinery streams, such as vacuum residual fuel, into lighter products, while reducing much of the feedstock to solid petroleum coke."
The Energy Information Administration also weighed in on Chicago gas prices. The EIA reported that as previously reported, Midwest gasoline prices shot up in April and May with refinery outages—some planned, some not—that lasted longer than expected, thus reducing Midwest gasoline supply. But Midwest gasoline prices are now falling closer to normal, helped by resumption of refining and the import of gasoline from other parts of the nation. Fuel prices in Minnesota and North Dakota have fallen to below the current U.S. average gasoline price, and prices in Michigan, Indiana, and Illinois are heading lower with the return of regional refinery production. Since April, nationwide gasoline prices have been stable, moving within a 16-cents-per-gallon range. But Midwest (PADD 2) prices varied in a range almost three times that of U.S. average prices. Planned and unplanned refinery maintenance as well as longer-term refinery upgrading projects over the past few months reduced gasoline production in the Midwest, pushing gasoline inventories lower and gasoline prices higher. Refinery utilization in the Midwest averaged 85% over the four weeks ending June 21.
Gasoline inventories typically increase before refinery maintenance season, and in April gasoline inventories were high. However the number of unplanned refinery outages—including Flint Hills (277,000 bbl/d) in Minnesota and Holly Frontier (138,000 bbl/d) in Kansas—and longer-than-anticipated planned maintenance caused gasoline inventories to decline quickly. Between mid-April and mid-May, Midwest gasoline inventories declined by 6 million barrels (11%) before recovering as refineries returned to normal operations and as gasoline supplied from other regions reached the Midwest. Refineries in the Midwest do not typically produce enough gasoline to meet Midwest demand, especially during the summer driving season. As a result, gasoline is supplied to the Midwest by pipeline and barge from other regions of the country, mostly from the U.S. Gulf Coast. Given the distances involved, resupply times can be long, which amplifies price volatility during disruptions.
Prices in Minnesota and North Dakota have come down sharply following the resumption of operations at Minnesota's two refineries, Northern Tier and Flint Hills. In the Great Lakes region, the 239,000 bbl/d Joliet, Illinois, refinery, which had been shut down for planned maintenance and which was expected to restart around the end of May, returned to operation on June 10, according to trade press reports, while BP's Whiting, Indiana refinery is expected to restart a crude unit that has been out of service since late last year by the end of June. While it will take several weeks for the refineries to reach full production, resupply from the U.S. Gulf Coast is already reaching the Midwest via pipeline.
The EIA also tanked natural gas with a whopping summertime injection number. The EIA reported that working gas in storage was 2,533 Bcf as of Friday, June 21, 2013, according to EIA estimates. This represents a net increase of 95 Bcf from the previous week. Stocks were 522 Bcf less than last year at this time and 31 Bcf below the 5-year average of 2,564 Bcf. In the East Region, stocks were 89 Bcf below the 5-year average following net injections of 58 Bcf. Stocks in the Producing Region were 13 Bcf above the 5-year average of 944 Bcf after a net injection of 24 Bcf. Stocks in the West Region were 45 Bcf above the 5-year average after a net addition of 13 Bcf. At 2,533 Bcf, total working gas is within the 5-year historical range.