Over the last two trading sessions the two largest oil companies in the United States, Exxon and Chevron announced that in Q4 2009 they lost a combined $6.9 million day on turning crude oil into refined products. Wall Street traders reacted to this news yesterday by making NYMEX crude oil even more expensive than gasoline. To explain this seeming incongruity, an unidentified financial trader from Camp Mohawk Trading was quoted as saying. . . IT JUST DOESN’T MATTER, IT JUST DOESN’T MATTER!
That’s Stephen Schork of the widely-read Schork Report, reflecting upon the current illogical investment pattern gripping energy markets.
According to Schork there’s no escaping the fact that — despite some short-term gasoline bullishness — motor gas demand in the United States has undergone a radical and long-lasting transformation since the 2008 financial crisis.
As Schork states, there’s no denying the US economy began recovering in late 2009, but that recovery is producing a very different economy to the one we were used to back in 2007. Essentially, much of the gasoline expenditure US oil companies took for granted, has been “wiped off the map and is not coming back”.
Schork produces the following chart to reflect the change in sentiment:
Unfortunately, Wall Street still appears to be catching up to the cutback in demand, says Schork.
And the point, as he puts it, is this:
Without this end demand for product, crude prices are fundamentally crippled on the upper bound. Whether the bulls realize that (and yesterday’s price action indicates they don’t) is another matter.
More to the point, the bulls probably do realize how bad the fundamentals are for crude oil, but they probably just don’t care.
So while Wall Street might still love crude oil, the romance comes at the expense of the refined products market.
To wit, how many more US refineries have to close before US oil companies can start making money again on the downstream, wonders Schork. His conclusion:
We don’t know and we get the sense Wall Street doesn’t care.
Related links:
BP’s unsurprising refining surprise - FT Alphaville
Independent refiner downgrades imminent? - FT Alphaville
Petroplus, still praying for a distillate recovery – FT Alphaville
Distillate hangover – FT Alphaville