London bulls are shooting 3 for 3 thus far. Brent’s overnight downward momentumin the July halted 9 cents from Tuesday’s 58.67 pivot low and then found a sharp bid as the NYMEX pit opened. North Sea crude spent the bulk of the post DOE session in a bullish holding pattern in between 59.99 inflection point and 61.24 intraday.
According to yesterday’s DOE report, mogas stocks fell hard, again, down 4.3 MMbbls or 2.1%. As a result, the year-on-year comparison has since morphed from a 4.7 MMbbl surplus (+2.2%) to a 5.5 MMbbl deficit (-2.6%). However, despite yesterday’s much larger than expected draw… the bullish trend did not endure, i.e. momentum stalled 56 ticks shy of our 187.24 intraday. Could this be the residue of a blow-off top? We certainly hope so.
U.S. refiners are in no apparent rush to get back to business. Per the DOE report for the week ended May 08th, capacity utilization tumbled by 162 bps to 83.7%. Over the last four reports utilization rates averaged a woeful 83.8%. That is 188 bps below a year ago for the same timestep and a whopping 789 bps below the 2003/07 timestep.
As such, overall production of finished gasoline has dropped by 378 Mbbl/d or 4.2%. At the same time, discretionary blending activity (conventional + alcohol) has plunged to just 3.46 MMbbl/d over the last two reports. Activity had averaged 4.08 Mbbl/d over the prior four reports. Given that blending economics (federal credit inclusive) remain favorable in most market areas, this is of concern.
Up until recently, ethanol was finding support thanks to a strong gasoline market. Last week June NYMEX RBOB came off of recent highs, but the contract is still up 14.7% from the end of April. The June CBOT ethanol contract is up only 4.6%. As a result, the ratio to the NYMEX weakened from 0.749 to 0.689.
That is not bullish action.
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Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.