With the cost of carry so low relative to the sharp contango, refiners are finding it cheaper to buy and store oil than to buy, crack and sell it. Thus capacity utilization fell from a 2010 peak of 89.59% on 30th April to 88.42% as of 7th May. Further, gasoline blending components are at their lowest point since the first week of March.
Regardless of strength in the gasoil contract, we see no domestic shortage of distillates. Ultra-low sulfur diesel (ULSD) stocks rose by 0.30 MMbbls, their second consecutive increase, and now stand 6.7% above last year. Meanwhile low sulfur diesel (LSD) stocks saw a 0.14 MMbbl build as long term environmental regulations continue to decrease demand for the product.
In advance of the approaching BBQ season, stocks of propane rose by 2.76 MMbbls last week. This is slightly above the 2.38 MMbbls seen at the same time last year, due in part to colder than expected weather along the East Coast. Total propane stocks now stand 14.4% below last year but 21.6% above the 2004-08 timestep.
Yesterday Uncle Sam reported a seasonal 1.95 MMbbl Build in WTI, slightly above the 1.6 MMbbl build expected by analysts. However a large build of 0.78 MMbbls at the Cushing, OK hub caused a sharp sell-off in the front month contract. The bears ran out of steam two cents below The Schork Report’s published 74.77 inflection point.
As far as today goes, weakness below yesterday’s 15% retrace of 75.09 alerts to our 74.09 inflection low. Below here we will look towards our 72.52 intra-day. On the other hand, gains above Tuesday’s 76.37 settle clears the path to our 77.21 inflection high. Through here the bulls will run to (and in to resistance at) our 78.78 intraday high.
Oil bulls tried to bid the post DOE market yesterday to no avail. As such, spot NYMEX crude oil finished the day 90 cents below the 200-day moving average. At the same time the discount on June WTI to July plunged to $4.4.50 and the discount to the corresponding Brent contract fell to 5.55! The market has settled into a congestive range over the last four sessions with the CBOE OVX dropping by 13% since Friday’s peak.
Meanwhile, the Philadelphia Oil Service Index (OSX) increased for a third straight session following last week’s plunge. In yesterday’s trading upward momentum was thwarted well below our 201.49 inflection-point, but the bulls managed to get a close 2 ticks above our 199.82 initial alert. Inflection points for today are published in today’s issue of The Schork Report.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.