So much for that “peak demand”

Everyone is watching the OPEC announcement today and that’s what really matters. Let’s get back to reality and check in with those EIA stats that have been so sadly ignored.  What happened last week was eye-popping, to say the least.  First off, I get that the draws in gasoline and distillate weren’t all that big.  Combined they saw only 1.2mm barrels out of the system.  Fine.  Now did anyone check out the fact that we ran over 17.2mm b/d in refinery runs and we happened to pull in 826K b/d of gasoline and distillate imports?  Or that we pulled 278K b/d of product exports off the market.  I didn’t think so.  Then there’s that ridiculous demand number for gasoline that came in at 9.7mm b/d.  We started off last year with this same sort of high figure and up until this past week, everyone was talking up the fact that demand was easing.  Well drop my shorts and pull out the cricket paddle, it looks like we’re in for a good time after all.  The wrench in the machine that is getting ignored here is that distillate demand is coming out of nowhere.  Well unless we’re all a bit smarter to understand that a growing economy usually increases their distillate (diesel) demand.  Someone might want to let all the Fed watchers in on that secret.

Last week didn’t disappoint for distillery demand and it came in again well above 4mm b/d.  Actually, over the 20 weeks of 2017, we only saw weekly distillate demand dip under 4mm b/d only 6 times.  Now if you’re believing only 80% of the market hype, then you should understand that the seasonal farming demand is actually worse off than it should be.  Seems that heavy rains have caused heavy flooding and crops aren’t being harvested as much.  That means that domestic demand is calling the shots and it’s probably only going to get stronger.  Which is fine in the grand scheme of things, but when demand is this high for distilleries, it’s usually when gas demand is off, like in winter.  Pause for a second, deep breath, now we should all be catching up with the disaster ahead. We’re running our refineries at above peak levels.  We’re embarking on another record year for gasoline demand.  Now we’re about to record one of the best years on record for distillate demand.  Anyone want to throw in where all the rest of the refined products that we and the rest of the world need are going to come from?  That’s right, we can’t get it from OPEC and this is exactly where we should be focusing our concerns.  Keep your damn oil, give me something I can really use.

Crude: And another month bites the dust. It’s hard to believe that we’re already moving along to the CLN7 contract. We now pivot past the last month of the year and that should be worth something to everyone trying to play the cash and financial markets. We kick off with resistance here at 5184, 5255 and 5360. We’ll look back lower to support at 5060, 4940 and 4860. We’ll also change the lead spread and the front spread moves up to CLN7/CLQ7 and start with resistance at –22, -16 and +15. Support comes back to –35, -48 and –57. Let’s get this week done right and the new contract back in play. Don’t lose your way; follow the Dollar, follow the dream. 

Gasoline: OK laziness has been set aside and I’m moving ahead the RBM17 contract. We can start with resistance here at 16575, 16760 and 16988. Support looks below to 16352, 16180 and 15985. The front spread moves to RBM7/RBN7. Resistance at +55, +110 and +200. Support to –30, -114 and –190. The RBN7/CLN7 gets resistance at 1855, 1922. Support falls to 1778, 1710. 

Distillate: The calendar keeps us moving and we are focused on the HOM17 contract. We’ll get resistance here at 16270, 16455, and 16660. Support looks back to 16028, 15870, and 15658. The front spread bumps up to HOM7/HON7. Resistance here looks at – 48, +35. Support holds down to –76, -88. The crack moves up to HON7/CLN7 Re-sistance at 1642, 1708. Support back to 1588, 1530. 

Macro Fundamentals: Let me tell you something about fund money; it’s there to make more money. If only people were like funds, non discriminatory and very forgiving. They will put money where the trend lies and forget about past transgressions where it’s failed. They follow the liquidity and the volatility where the opportunity to make money is in plain sight. That said, it’s a good time to take a break from oil. There’s the OPEC meeting, but aside from that, up here there’s not a lot further to go up and we’re not going back down. Off to other markets. Jobless Claims (237K) at 8:30am ET. 

About the Author

Carl Larry is Director of Business Development Consultant for Oil and Gas at Frost & Sullivan. Follow him on Twitter (@oiloutlooks) or on his website.