Refining madness

Daily Energy Markets Analysis

If the American Petroleum Institute is any indication refiners continue to refine oil into product at a record pace.

Cheaper domestic and higher yielding oil are leading to high margins for refiners that keep them running at a historic pace. What is more that even with that record pace the draw on U.S. inventories are not as big as some people feared as U.S. oil production is almost keeping up with the refiners frantic pace.

We saw the market play out those fears on a wild August crude oil (NYMEX:CLQ14) expiration that swung wildly on fears that tight supply in Cushing Oklahoma may make it that supply in Cushing, Okla., may make it tougher for some refiners as the competition for Midwest crude supply is heating up.

The API reported that U.S. refining runs jumped up to 93.3% of capacity yet crude supply fell only 555.000 barrels. We did have a 1.4 million barrel drawdown in Cushing which justified some of the August delivery related angst but it did lead to some pretty big build in products. The API reported that U.S. gas stocks increased by 3.6 million barrels and distillates by 2.5 million barrels. The traders will use these benchmarks as a reaction point for today's Energy Information Administration version of the report.

Traders are also awaiting European sanctions on Russia. The market is preparing further sanctions against Russia for backing Ukraine's separatists, who shot down the Malaysia Airlines passenger plane but believe that they won't go after Gazprom because they still need their gas.

Libya unrest is giving Brent Crude renewed support. Dow Jones reports that "heavy fighting around Tripoli airport has hit a fuel tanker, oil and airport officials said Wednesday, as an escalation of violence in Libya damages the oil infrastructure for the first time.

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