On Monday and again in yesterday’s issue of , we expressed our concern regarding the relatively low levels of overall stocks of transportation fuels (on-highway diesel and gasoline) on the West Coast (PADD V).
That concern was amplified, first, by an apparent uptick in intermodal transport demand; vis-à-vis a 14% jump in activity at the Port of Long Beach in August; and then by the fire last Friday at Tesoro’s Wilmington refinery near Los Angeles.
Specifically, while the flattening of the NYMEX WTI contango has led to most of the country swimming in products, the West Coast market remains tight. According to the latest data from Long Beach, container or TEUs (Twenty-foot Equivalent Unit) traffic year-to-date is down around 25%.
However, as we just noted, August TEUs jumped 14%. The Long Beach port handles approximately 13% of all the TEUs that pass through U.S. ports. Our specific fear is that increased intermodal transport demand up-and-down the PADD V coast, against a backdrop of low gasoline and diesel stocks, creates a potential bullish template.
The first half of 2009 saw 388,846 TEUs at Long Beach; a full 22% lower than the 03-07 timestep and 27.4% lower than 2008. The expectation is that total containers are positively correlated with the stocks of distillate fuels in the West Coast.
Indeed, that was true over the 03-07 timestep, which had a correlation coefficient of 0.494, i.e. half of the distillate stock movements could be explained by examining the total containers. However, that relationship has begun to break down, in 2008 it was a negative 0.444 and 2009 to date has seen a correlation of negative 0.668. A complete turnaround in correlation is quite surprising, and hard to ignore.
For instance, total containers at Long Beach are up over 55% since January, due in part to a spike in Augusts’ numbers. However, stocks are down by 11.4%. What gives?
The answer could come from diesel prices, which have seen an increased correlation with both containers and stocks. For instance, correlation between diesel prices and stocks is a strong negative 0.78, almost double the negative 0.31 value for 2008, i.e. low stocks cause high prices as expected. Similarly, the correlation between prices and total containers is 0.76, up from 0.58 in 2008. That means that as the price goes up, the number of containers increases but stocks decrease.
The bottom line, until the correlation between stocks and containers returns to a positive value, TEU traffic at Long Beach is not a suitable indicator. With all of that said, the DOE reported sizeable gains across the Board last week in PADD V.
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.