Energy prices were weak on Tuesday, the entire complex began the new month where it ended the old one, i.e. on an ugly note.
As far as today’s DOE report goes, the crowd is expecting a net draw of 0.5 MMbbls in the major products and a draw of 1.0 MMbbls in crude oil.
As always, you should take the Street’s guesstimate for what it is worth… not much.
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Per last week’s DOE report, gasoline supplies fell by a de minimis 1.7 MMbbls or 0.9%. This report tends to be one of the largest of the year as vacation season peaks. In fact, along with the end-of-season purge in wintergrade material, this is when we see the largest draws in gasoline. In this vein, given the lateness of this year’s U.S. Labor Day holiday, a very large draw in gasoline per this morning’s report is to be expected.
Since the U.S. Memorial Day holiday (May 25th) DOE gasoline supplies actually increased by 4.1 MMbbls or 2.0%. At this point in the season we normally see a draw of around of 9.6 MMbbls or 4.6%. A build in gasoline supplies through the summer driving season has only occurred once (2004) over the last 20 years for which the DOE provides data.
As we look forward to this weekend’s holiday in the U.S. the American Automobile Association (AAA) is predicting a 13% year-on-year drop in gasoline demand.
Given that gasoline at the pump is more than a $1 a gallon (-29%) below last year’s holiday, analysts at The Schork Reportindicate that this is pretty telling.
Bottom line, the reported 8.4 MMbbl draw in crude oil from the week ended August 14th has still not been explained. Whereas the API reported a semi true-up last Wednesday, the DOE failed to corroborate. Nevertheless, overall inventories remain well above seasonal norms as we head into a low demand period through the fall turnarounds. To wit, the forward curve on the two largest futures markets, London and New York, are still holding well defined contangoes.
Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.