Morning Petrospective – June 23, 2011

il prices were higher on Wednesday as traders reacted to a drawdown in crude oil stocks and a small decline in gasoline stocks. The crude oil draw took inventories below year-ago levels for the first time in a long time, and stocks are now 1.3 million barrels (0.36%) lower than they were at this point in 2010. A week ago, stocks were 2.5 million barrels (0.69%) higher than in 2010 and they were at 21-year highs. There were also minor gains in demand, with total demand now down 531,000 bpd or 2.71%, compared to last week’s reading of down 620,000 bpd and 3.16%.

Gasoline demand was down 51,000 bpd to 9.319 million bpd, but the four-week average of aggregate demand came in at 9.321 million bpd, which is up 0.91% on the year. Last week, four-week demand was at 9.247 million bpd, which was up 0.50%. Gasoline stocks are now 3.0 million barrels (1.38%) lower than a year ago, compared to 3.2 million barrels (1.47%) lower a week ago.

Of course, those were just the bullish numbers. Distillate stocks were up 1.173 million barrels and that cut the year-on-year deficit from 15.8 million barrels (10.09%) to 14.9 million barrels (9.50%). Distillate demand dropped 185,000 bpd and four-week distillate demand came in this week at 3.668 million bpd, down 5.73%, compared to last week’s 3.809 million bpd, which was down 3.57%.

And the gasoline number was “funny” yet again. The DOE reported a drawdown of 464,000 barrels. But this miraculous drawdown came from a week in which daily output was 9.541 million bpd and imports had been 867,000 bpd. That should have given us a daily supply of 10.408 million bpd. Demand was listed as 9.319 million bpd, not even enough to absorb the DOE’s listed daily refinery production of gasoline. Those numbers should have given us a build of 1.089 million barrels a day last week – the equivalent of a build of 7.623 million bpd. Alternatively, we would have needed demand of 10.474 million bpd to absorb what the DOE itself reported as daily output and imports. This has nothing to do with ethanol or MTBE or ETBE or any other blending component; these are just the straight-up numbers reported by the DOE for production, imports and demand last week. That’s 8 million barrels of gasoline unaccounted for, if one takes the DOE figures at face value, which apparently is not the way to go.

In addition, refinery utilization jumped 3.1%, which means that we will be producing more gasoline, in particular, this week. That is normal. We typically see utilization increase into Independence Day, which is more often than not when we see the peak in refining rates. If it does not come on the Fourth of July, then Labor Day is the next most frequently-seen time that refinery utilization reaches its peak for the year. We should be seeing the highest refined product output rates this year over the remainder of June – this next week.

The DJIA was down 80.34 to 12,109.67, and the euro was lower on Wednesday. Both of those are factors that could have pulled oil quotes lower. And Federal Reserve Board Chairman Ben Bernanke held his second press conference on Wednesday, after an FOMC meeting and he was clear that the Fed will not raise interest rates this summer – while being equally clear than another round of quantitative easing is not in the cards. He recognized that the economy has slowed, but he said that the factors slowing economic recovery are likely to be temporary. He said that the Fed had launched QE2 to stave off deflation, which he no longer sees as a serious threat. Signs of inflation are also seen as being temporary, he said. Without the Fed making extensive asset purchases, we see the engine of inflation stalled out. That should affect oil prices longer term.

FMX Newswire

FMX Newswire is an overnight news summary designed to meet the needs of professional energy traders. The content is to-the point, professional grade and not widely reported in the mainstream media. All sources are professional respected firms and newspapers.

Bentek Energy

• Supply/Demand Balance Analytic Report – Supply Holds Steady as Canadian Imports and LNG Offset Production Dip.
• Rockies Observer – California Demand Draws Rockies Production West.
• Industrial End Users Analytic Report – Ethanol Production Continues to Rise.
• Power Burn Analytic Report – Power Burn Drops 4%.

Platts

• BP expects to sell down equity stakes in its exploration portfolio in the US Gulf of Mexico over the coming years, BP CEO Bob Dudley said.
• Greenpeace has made a novel protest against deepwater drilling by hijacking the internet connection at a London hotel hosting a conference.
• China's apparent oil demand in May reached 39.4 mil mt, 8% higher on year, according to a Platts analysis based on government statistics.
• Bunker fuel loading at the Port of Hong Kong was suspended Wed after the Hong Kong Observatory issued a tropical cyclone warning level 3.  

Bloomberg

• Crude Declines on Demand Concerns After Fed Lowers U.S. Economic Forecast
• Refiner Yields Drop Most in a Year as Oil Slide Trims Losses: India Credit.
• Silver’s 74% Surge Creates ‘Headwind’ for Solar Rivalry With Fossil Fuels.
• Obama Says Withdrawal From Afghanistan Will Aid ‘Nation-Building at Home’.

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