Gasoline Rises On Record Low Supply

Reports that gasoline supply is at a record low is fueling a big jump in gasoline prices at the NYMEX. The Department of Energy's Energy Information Administration today says gasoline supply is at a record low, reaching just 20 days of supply.

Oil prices at the NYMEX have been jumping since the EIA data this morning showed a big drop in crude and gasoline supplies and a big decline in refinery runs. This afternoon, oil was up more than 2% at $73.18. This week the draw in crude oil was 3.5 million barrels to 333.6 million barrels. Platt's was expecting a draw of 1.25 million barrels. In gasoline, Platt's expected a 1.7 million barrels draw. Instead, the draw was 3.6 million barrels of gasoline to 192.6 million gallons, or 8.2% below last year's level.

CNBC's Rebecca Jarvis covered the inventory data and the market's move. Gasoline was trading at $2.085 per gallon, up 3.5% in afternoon trading.

"There's a couple of interesting points here. I got an interesting note from Andy Lipow talking about the issues of gasoline in the Midwest where inventories are at 17-year lows. One thing that traders have been saying to me for the last couple of weeks has been to follow the cash market in gasoline," said Jarvis. "In the Midwest, gasoline cash cash prices are now 40 cents higher than the NYMEX October contract, and Lipow doesn't see the situation getting any better for the next four to six weeks," she said. Lipow is president of Lipow Oil Associates.

Jarvis also said a high number of unplanned refinery outages throughout the summer have been a factor. "That pinched inventories. The most recent was the Chevron Pascagoula, Miss. refinery that caught on fire in mid August. This is one of the biggest refineries in the U.S. Given the number of planned outages for September, it appear supplies may stay crimped and there's some sense gasoline prices will continue to rise," she said.

Natural gas was weaker again today, losing $0.18 per BTU to $5.412 at midday but traders are watching it closely after yesterday's move up.

"There's massive short interest in natural gas. The CFTC data showed it at record levels...and the issue right now is that there were some meteorologist reports yesterday suggesting a possible storm in the eastern Caribbean. Yesterday, for the first time since before hurricane Dean, we saw prices move up. The sense was that yesterday that rally was a short covering rally in natural gas," said Jarvis.

Jarvis said the second anniversary of Katrina today has significance for traders. "I think people trading in the pits or on a desk somewhere can't help but remember people got burned on this one before," Jarvis said.

Strong Auction Takes Down Yields
A strong two-year note auction is reversing some of the selling in the bond market, initially taking yields on short Treasuries to the lowest yields of the day.

The $20 billion auction drew a yield of 4.115%. After the auction, the two-year yield was as low as 4.08% but bounced and moved back to 4.11%. The 10-year was at 4.52%. "The auction was like A plus, off the charts great," says CNBC's Rick Santelli. "The lower yields show it was a very well demanded auction."

"It was oversubscribed four to of the most aggressive oversubscriptions of a two-year auction that I could remember," he said. "You can argue that being aggressive may portray a picture of continued anxiety but the fact the equity markets are holding onto their gains means both markets are coexisting."

The Dow was off its highs after the auction but still holding onto strong, double-digit gains.

Santelli said one of the things that bothered traders early today was the news from London's Cheyne Capital Management, a money management firm that it is liquidating assets due to portfolio losses. The health of financial firms of all types has been top of mind across markets.

Stock traders were cheered by comments from Moody's today that the big U.S. investment banks have the financial strength to weather the credit crisis and remain in the black.

"The stock market might look better, but the Treasury market is still showing it is distrustful. I think the light volumes are making bond traders question the substance of the bounce in stocks. At the end of the day for traders, there's no board of rebates where if you lost money in a quiet market they don't give you any of it back,." said Santelli. Total Treasury issuance this week is $124 billion.

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