- Therefore, the combination of temporary disruptions to domestic offshore production and waterborne deliveries skewed last week’s data. Consequently, oil stocks in PADD III dropped by a massive 6.2 MMbbls. Large builds elsewhere in the complex (2.2 in the East, 1.7 in the Midwest and 1.6 in the West) offset a large degree of the storm related outlier in the Gulf.
- We will look for a rebound in oil production in the next couple of DOE reports. However, we expect no such event for imports. The mixture of poor refinery economics, lack of carry on the NYMEX and the seasonal purge in PADD III onshore storage (owing to end of year tax reporting considerations) limit Q4 requirements for foreign oil. The need for this oil is also mitigated by the year-on-year surge in domestic offshore production in the GoM.
- Capacity utilization dropped by another 49 bps to 79.4%. Per analyst’s conference calls in the wake of Q3 earnings, refiners are expected to hold output below 80% through the remainder of this quarter.
- Total product demand edged up from a four-month low. Nevertheless, over the last four reports demand averaged an anemic 18.6 MMbbl/d. That is 454 Mbbl/d (-2.4%) lower compared with a year ago and 2.01 MMbbl/d (-9.7%) lower compared with the 2003-2007 timestep.
Bottom line, the race is on; between falling demand and falling production. Regardless of the outcome, one result is almost guaranteed… the consumer will lose. And, given that consumer spending is responsible for more than two-thirds of the U.S. economy that does not bode well for the strength of the incipient recovery in the U.S.
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.