CNBC Guest Blog

Published: Wednesday, 4 Nov 2009 | 10:37 AM ET

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Stephen Schork
Editor of
"The Schork Report"

Refinery activity continues to lag. Over the last four DOE reports throughput averaged 14.5 MMbbl/d. That is 278 Mbbl/d or 1.9% below the 5-year average, inclusive of the 2005 Katrina/Rita outlier. This drop coincided with the plunge in the NYMEX 3:2:1 crack spread that began in the second half of September in the wake of the RVP switchover.

However, the so-called refiners crack has jumped more than 50% since the first half of October, from below $4 a barrel to over $6, for a yield to WTI of 7.7%. 

Therefore, margins are now moving in a positive direction for refiners. This could translate into greater demand for crude oil once refiners return from maintenance.

Gasoline production ramped back per last week’s DOE report. Output as of the week ended October 23^rd was 4½% higher than the average of the prior two reports.  What’s more, while overall shipments of gasoline are low (0.78 MMbbl/d over the last four reports), imports of gasoline blendstocks have been coming in well above seasonal norms.  That is a sign refiners are planning to ramp up production post turnarounds. 

Gasoline supplies are certainly comfortable, i.e. 13.6 MMbbls (7%) above a year ago and 10.6 MMbbls (5.4%) above the 2003-07 timestep.

Be that as it may, traders on the NYMEX are apparently concerned regarding the future availability of gasoline. 

For instance, a year ago the summer 2009 summergrade strip (April through September) ended October in a contango with a positive $1.15 gradient. Fast forward one year, last Friday the summer 2010 summer strip ended October in backwardation with a negative $0.115 gradient (See Chart of the Day in today’s issue of The Schork Report ). 

In other words, despite the surfeit of nearby supply, the premium on owning gasoline on the front of the NYMEX curve is gaining on the back. That usually occurs when the market perceives tightness in the future availability of supply… and that is usually a bullish signal.

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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.

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