ENERGY PRICES WERE MIXED ON WEDNESDAY… oil markets moved higher because – you know why –because equities moved higher. Meantime, natty moved lower because – you know why – because unlike oil, the price path in natural gas correlates to its fundamentals… and not the stock market.
As such, you know the refrain… the U.S. is swimming in crude oil. You also know the other refrain… that doesn’t matter because equities moved higher yesterday.
Bottom line, once again, nothing changed last week. The report was bearish. Per yesterday’s numbers, transportation fuels (mogas, diesel, jet…) fell, but one week does not a trend make. On the other hand, heating fuels surged, as did stocks of commercial and government crude oil. As a result, total U.S. supplies of crude oil and petroleum products rose to the highest level, 1.796 billion (×109) barrels, since at least 1982, as far back as the DOE provides weekly data. On top of this, demand continues to wane. For instance, last week the total amount of petroleum products supplied to the market held near post 9/11 lows.
More importantly, runs in the East (PADD I) retreated. In the meantime, the largest refiner in the Northeast, Sunoco, shuttered a FCC and CDU unit at its Philadelphia refinery due to poor margins. Thus, it appears the table is set for sub-standard runs in PADD I as we approach the start of the U.S. summer driving season (Memorial Day, May 25th). Interestingly enough, while Sunoco was pulling the trigger on the shut-in, the NYMEX 3:2:1 crack spread for June delivery was surging towards the seasonal mean. For example, the Sunoco announcement came out on April 22nd. The NYMEX crack peaked at 121 cents on the dollar to crude oil the day before. Since then the crack has plunged (see above) to around 116 cents on the dollar. A year ago the crack was at 110 cents on the dollar.
Thus, today’s crack market is more attractive than a year ago, but according to Sunoco, not attractive enough.
Gasoline imports plunged last week, down 276 Mbbl/d to 0.84 MMbbl/d. It was the first report in two months where imports came in below the 1.0 MMbbl/d threshold. At the same time refinery utilization plunged, as did gasoline production. This is obviously important. In this vein, we note the sharp flattening in the NYMEX summer RBOB curve.
As we noted in The Schork Reportat the beginning of this week… we think a tightening in the contango, regardless of surplus supplies, is normal in the lead up to the season. Thus, it is reasonable to expect this path to continue as we approach the Memorial Day holiday (the start of the U.S. driving season) in the third week of May.
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.