The energy markets are signaling that winter is on the way. Not so much by the weather challenged natural gas market that tanked ahead of today's Energy Information Administration report but the traditional widening of the spread of the Heat oil/ultra-low sulfur diesel over gasoline (NYMEX:RBU14).
The move was inspired by yesterday's Energy Information Administration status report that showed demand in general is weakening but distillate demand is the best of a bad bunch. Distillate exports are strong and the expectations are that demand will heat up as farmers get ready to harvest a record corn and soybean crop. Oh, yes, and there is that winter thing.
Crude (NYMEX:CLU14) builds in the Gulf-Coast and a drop in runs showed that weakening demand overshadowed refining problems. Gas demand that had rebounded last week dipped again. The EIA showed that demand averaged over 9.0 million barrels per day, down by 1.3% from the same period last year. Distillate demand was a little better at 4.0 million barrels a day.
Overall crude oil inventories increased by 1.4 million barrels from the previous week which was bearish. Oil supplies are at 367.0 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 1.2 million barrels last week, and are in the middle of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 2.4 million barrels last week and are below the lower limit of the average range for this time of year.
The concept of winter is lost on the natural gas market probably because it has no concept of summer. The market plummeted on technical and another Atlantic storm that fizzled out. Today we will get a report that should show an injection of 81 billion cubic feet. Even with that injection supply will still be well below average. Maybe winter won't come after all.
The Wall Street Journal reported as expected that Mexico set aside the bulk of its currently active oil fields for Pemex as the government ends the national oil firm's monopoly but said private companies would be allowed to bid on four-fifths of prospective resources." Mexico's pride had to finally take a back seat to the reality of decline production.