Traders were hoping Fed Chairman Ben Bernanke would provide some volatility yet instead he seemed to bring stability. What fun is that? Of course at the end of his testimony he seemed to suggest that the economy would tank without him. Ok maybe he did not put it quit that way but the message told to the House Financial Services Committee was that "If we were to tighten (monetary) policy, the economy would tank."
So in other words Mr. Bernanke is telling us something that we already really knew. That this so called economic recovery is not really a recovery at all but life support from easy money policy. While the Fed would like to slowly start tapering off the drug that is keeping us in this recovery haze, a removal of the drugs and having to face reality would be nothing but a crashing downer. Without Ben and his policy of quantitative easing we would be doomed, so we need to stay in this medicated state basically until further notice.
Of course others will argue that the problem is not the disease but the cure. By keeping the economy doped up and happy some might suggest that we will not be forced to fix the underlying causes of the great recession in the first place. That by being in a constant state of hallucinogenic QE that we will never get to the crux of the problem and fix what really is wrong in this broken economy. The banks will continue to get rich and stocks will go up but where are the jobs? Of course that argument is probably a moot point.
What is not a moot point is U.S. refinery runs. The Energy Information Administration reported that crude runs at U.S. refineries have increased steadily since early March to reach some of the highest levels on record. At 16.1 million barrels per day (bbl/d) for the week ending July 5, U.S. crude oil runs were the highest for any week since 2007. This level represented a 2.1-million-bbl/d increase from the first week of March, the low point for the first six months of 2013. While the increase in crude runs since March reflects a particularly strong rebound from spring maintenance, an underlying combination of recent refinery capacity expansions and relatively healthy margins helped drive the absolute level of runs to a multiyear high.
The EIA says that both the steep ramp-up in runs and the high absolute level in early July were driven by refiners in the Gulf Coast (PADD 3) and Midwest (PADD 2) (Thank You BP Whiting). The Gulf Coast is home to more than 50% of U.S. refining capacity, and thus is often the key determinant of U.S. refining trends. Typically, the Gulf Coast, along with the West Coast, sees the country's earliest refinery turnaround season. In 2013, Gulf Coast runs reached their seasonal nadir the week ending March 1 at just under 6.9 million bbl/d, as several big facilities in the region underwent maintenance, including Lyondell's Houston refinery, Western's El Paso refinery, and Valero's Norco, Louisiana, facility. As facilities began to return from maintenance, Gulf Coast runs increased significantly. In each year from 2008 to 2012, Gulf Coast refiners ramped up crude runs by an average of 860,000 bbl/d from their first-half low point (which ranged anywhere from late January to early April) through the first week of July. This year, however, Gulf Coast runs increased by a staggering 1.6 million bbl/d, to reach 8.5 million barrels per day for the week ending July 5, down only 30,000 barrels per day from the record set the previous week.
The EIA says that to a large extent, record high Gulf Coast crude runs can be attributed to the new distillation capacity at Motiva's Port Arthur plant and relatively robust margins for the area's refiners. In June 2012, Motiva commissioned a new 325,000-barrels per day crude distillation unit at the refinery, but shortly thereafter, it encountered operational difficulties and was shut down for several months. With that expansion now fully operational, Gulf Coast operating distillation capacity stood at more than 8.7 million barrels per day as of Jan. 1, 2013, up more than 180,000 barrels per day from a year earlier. In addition to higher capacity, Gulf Coast refineries are also running at very high levels of utilization, nearly 94% on average for the four weeks ending July 5.
Because of that big historic run rate the market seemed less concerned about the drop in crude supply. Maybe because the market is seeing supply as more than ample despite the sharp drop from historic levels. The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 6.9 million barrels from the previous week. At 367.0 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 3.1 million barrels last week and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 3.9 million barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories increased by 0.6 million barrels last week and are in the upper half of the average range. Total commercial petroleum inventories decreased by 0.2 million barrels last week.