At FT Alphaville we’ve been noting the recent strength in energy cracks for a while – that is, the difference between product and crude prices, which reflect the refining margin and when it pays to produce gasoline. But just to really emphasise the point here are some charts that include Tuesday’s mega rally:
The Naphtha crack strengthening…
And here is the 321 crack which hints at the overall profitability of a refinery. As can be seen below it had been trading perilously near the zero mark in the last quarter :
As Olivier Jakob at Petromatrix sums up (our emphasis):
The October debacle had brought a collapse of the Naphtha crack as Asian factories were being shut, a dive in the Gasoline crack to unusual negative territory and ICE Gasoil going into extreme contango. The current situation in relative values is that the Naphtha crack has risen back to pre-crisis levels due to renewed demand in Asia, the Gasoline crack is back to positive territory and the ICE Gasoil contango has been reduced to levels where storage economics can start to be put in doubt.
Trading in cracks on Tuesday nevertheless was reportedly very volatile, something traders attributed to the GSCI Index rebalancing as it added gasoline positions.
Meanwhile, as Bloomberg reports, conventional gasoline’s spread to futures in the US Gulf also hit an important marker – it traded at a premium for the first time since October. This is largely due to the cutback in refinery runs, which suggests runs could be ramping up again soon.
With all that in mind the market will be closely following today’s weekly Department of Energy crude inventory numbers – specifically how the build at the WTI delivery point in Cushing is faring. It’s the resulting weakness in WTI that is largely responsible for the strength in cracks, and other crude grades on a comparative basis. As a reminder, JBC Energy estimates the site’s total ‘operable’ capacity is some 34m barrels. Last week’s data showed a record build to 32.3 m barrels.
The data is due at 3.30 pm GMT with expectations focused on a crude build of 2m barrels, a distillate build of 0.8m barrels and a gasoline build of 2.2m barrels. Refinery runs, meanwhile, are 1.0 per cent lower in the week.
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3.30 pm GMT update:
*DJ Cushing Oil Inventories Set Record For 2nd Straight Week at 33mn barrels
Oh dear.
Related links:
Every commodity crash has a silver lining – FT Alphaville
It’s all about Cushing – FT Alphaville