Recap: Oil markets were mixed Wednesday after mixed signals upon the release of the weekly DOE inventory data for the period ended August 22, 2014. Although market expectations were essentially confirmed by the DOE data, the market seems to be taking a longer seasonal view as the summer driving season comes to a close after Labor Day, the heating season (and hurricane season) ramps up, and refiners plan to go into seasonal maintenance. For now, another stunning national robust refiner operable utilization average rate of 93.5%, the second highest of the summer, confirmed that refiners have been boiling the midnight oil, as commercial crude oil stocks declined 2.1 MMbs to 360.5 MMbs, but Cushing, OK crude stocks increased .5 MMbs to 20.7 MMbs. October NYMEX (WTI) Crude futures gained only 2 cents to $93.88, but January NYMEX Crude futures closed lower at $92.95, representing a 93-cent backwardation from October to January. Again, further confirmation that due to strong refining and demand for WTI crude, there is a premium for today's barrels as compared to winter ones. Luckily, per the EIA yesterday, "Record-setting liquid fuels production growth in the United States has more than offset the growth of unplanned global supply disruptions over the past few years." On the other hand, October ICE Brent Crude futures moved up 22 cents to $102.72, but the outer January futures contract settled at $104.49, representing a carry or contango (the opposite of a backwardation). With the future winter Brent price higher than the current one, Brent crude is currently at a discount to the future, indicating ample supplies and weak refining demand in Europe for this global crude benchmark. The Brent-WTI spread increased again yesterday and now stands at $8.84 per barrel, representing an incentive for U.S. refiners to export diesel and gasoline products. As mentioned in MarketWatch yesterday, the Brent-WTI spread has increased over 50% in the past two weeks.
The seasonal draw in gasoline inventories of 1 MMbs was expected, but the decline in NYMEX RBOB (Gasoline) of 1.72 cents to $2.7459 could be taking into consideration that in the week following Labor Day, U.S. gasoline demand will start to tick down and the incoming October RBOB contract will now be a cheaper winter grade RVP, which settled yesterday at $2.5905. And despite a larger than expected build of distillate inventories that seemed bearish, NYMEX ULSD (HO) gained 1.63 cents to settle at $2.8605, technically breaking up through one resistance level, a telling move by the bulls.
Currently, oil markets are up across the board, with NYMEX ULSD (HO) leading the way, up 2.20 cents to $2.8825, NYMEX RBOB up 66 points to $2.7525, NYMEX Crude up 20 cents to $94.08, and ICE Brent Crude up 35 cents to $103.07. Geopolitical issues continue to dominate news headlines, but have had a recent limited impact on oil markets due in part to U.S. crude production. Tomorrow we will recap geopolitical hotspots ahead of the holiday.
Bulls, Bears and Elephants, oh my? Are the heating oil bears already going into hibernation? Could it be there is an elephant in the room? There is a big elephant sitting in the Northeast distillate picture as PADD 1 (East Coast) distillates declined 1 MMbs, offsetting the overall 1.3 MMb distillate increase across the rest of the country (see EIA's PADD 1 Distillate Fuel Oil Stocks chart below). With NY Harbor the pricing location for NYMEX RBOB and ULSD futures contracts, is the on-going inventory physical weakness, particularly in PADD 1B (Central including NY) and PADD 1A (New England), impacting the futures market? Perhaps there was impact felt as East Coast refiners reduced their operable utilization % by 2.3 percentage points to 87.1% this week, as compared to 87.8% last year. PADD 1B distillate stocks are down 13.7%, but down 27.1% versus the 5-year average. PADD 1A distillate stocks are practically even to last year at this time, but are 41.5% lower than the 5-year average. Bulls may be seeing this elephant, but with the NYMEX RBOB and ULSD futures contracts set to expire tomorrow, ahead of the long Labor Day weekend, let's hope this is just a temporary pop up. Click here to view today's Refined Products MarketWatch.