Happy days are here again?
Refinery margins have seen significant improvement since the start of the quarter with the yield on product values to crude oil in the U.S. mid-continent doubling (to ?20%).
In absolute terms, the spot NYMEX 3-2-1 crack spread for June 2010 delivery (the so-called refiner’s crack) has ballooned from $9.78 a barrel at the end of the first quarter to $15.26 as of last night (+56%). A year ago the June 2009 crack topped out at $11.912.
As such, refiners are maxing out output whenever, wherever they can. To wit, refinery throughput (read… demand for crude oil) in the U.S. is averaging around 5% or 0.74 MMbbl/d above the seasonal norm through the first five (full) weekly reports of the quarter.
Be that as it may, as the charts in today’s issue of The Schork Report illustrate, above normal demand for crude oil has done nothing to curb the surplus of supply. In fact, the disposition of supply relative to the seasonal norm has morphed from a 3.3 MMbbl deficit (-1%) in February to a 6.6 MMbbl surplus (+1.9%) as of last week.
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This event coincides with the collapse in the front of the NYMEX WTI curve. Thus, strong spot demand for crude oil notwithstanding, the market had to increase the incentive to take oil off that spot market from $0.25 (+0.3%) to $3.82 (+5.3%) as of last Friday. In other words, at a time of rising demand, storage at the NYMEX hub in Cushing surged 24% to an all-time high.
Strong refinery outputs are a corollary of strong refinery inputs. In response to seasonally heavy utilization rates this quarter, gasoline production is averaging 9.2 MMbbl/d and distillate production 4.13 MMbbl/d, 2.8% and 2.1% above respective seasonal norms. As a consequence, gasoline and distillate supplies are on the cusp of seasonal demand each with a 15 MMbbl surplus to the norm!
Bottom line, petroleum supplies are very comfortable for this time of the year.
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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.