Oil finds new life after surprise inventory draw

New Life

Oil (NYMEX:CLF14) has found new life after reports showed that oil supply could actually fall. The Energy Information Administration destroyed that myth. The EIA reported that U.S. crude supply fell by 5.6 million barrels. Oil refiners went on a refining rampage raising utilization to 92.4% spitting out near record production of distillate to meet record exports.  As for gasoline production it seemed more like we were getting ready for the Fourth of July instead of Christmas. At the same time, imports dropped as refiners draw down inventory for year-end tax considerations and fog down in the Houston Shipping Channel.

The EIA reported that U.S exports of distillate fuel reached a monthly record of 1.4 million barrels per day (bbl/d) in July, and averaged more than 1.3 million bbl/d during third-quarter 2013 (September is the last month for which export data are available). This level is up 30% from 1.0 million bbl/d during third-quarter 2012 and from 0.3 million bbl/d during that period in 2007.

The Energy Information Administration said that global distillate demand growth has helped support U.S. refinery runs. U.S. refiners increased distillate exports in recent years partly because of the smaller domestic distillate market; however, exports have increased by more than demand has declined, and even with modest U.S. demand growth in 2013, exports have continued to increase. Increased distillate exports reflect the competitive advantage of U.S. Gulf Coast refiners, which have supplied almost 80% of U.S. distillate exports during the first nine months of 2013.

Among Gulf Coast refiners’ competitive advantages are the region’s access to competitively priced natural gas and crude oil inputs; significant coking capacity to produce more high-value products from a barrel of crude; and easy access to Latin American markets, which are short of distillate fuel. On the back of these advantages, U.S. refinery gross inputs averaged 16.3 million bbl/d during third-quarter 2013, with inputs exceeding 16.5 million bbl/d for the week ending July 12, the highest of any week since 2005. Likewise, refinery utilization has averaged almost 88% in 2013, up from an average of 86% for the five previous years.

Gas supply increased 1.8 million barrels last week holding back the products. The Energy Information Administration reported that U.S. average retail price of regular gasoline decreased two cents to $3.27 per gallon as of Dec. 2, 2013, 12 cents lower than last year at this time. Prices rose two cents on the West Coast to $3.48 per gallon, and less than a penny on the East Coast to remain at $3.39 per gallon, while falling in all other regions of the nation. The largest decrease came in the Midwest, where the price decreased seven cents to $3.12 per gallon. In the Rocky Mountains the price was $3.11 per gallon, a drop of three cents from last week, and the Gulf Coast price was two cents lower at $3.12 per gallon.

The national average diesel fuel price increased four cents to $3.88 per gallon, 14 cents lower than last year at this time. Prices increased in all regions of the nation, with the largest increase coming in the Midwest, where the price was up five cents to $3.88 per gallon. The East and West Coast prices both were up four cents, to $3.91 per gallon and $4.00 per gallon, respectively. On the Gulf Coast the price was $3.78 per gallon, a gain of three cents, and the Rocky Mountain price rose two cents to $3.86 per gallon.

Long term we still are holding to our target of $88. Despite this yearend rally and the possibility that we may go higher, overwhelming supply will eventually bring us back down to earth. Yet with the Houston shipping channel shut and the Trans Canada pipeline reversal, the target is delayed. Holiday and yearend markets make for crazy moves. Option players may start thinking bearish strategies soon for early next year.

Nat gas failed to rocket despite the impending cold blast. Today we get the EIA Nat gas report and we are looking for a withdrawal of 138bcf. Then it will be back to guessing weather.

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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