The justification for Wednesday’s commodity rout is still that RBOB futures fell (or crashed) after the EIA reported larger than expected US stockbuilds in gasoline. The more than 8 per cent move, in the usually much more stable contract, saw the CME lift margins for speculators by 21.4 per cent for Thursday.
But is the RBOB situation really all that simple?
Yes, it is true that RBOB cracks — the difference between the price of gasoline and oil, which determines how much of an incentive there is for refineries to process crude — were looking more than toppish.
As Stephen Schork pointed out on Thursday in his Schork Report, a double-top was clearly evident in the technical chart after the crack hit an intraday record of $40.18.
But while the EIA data were bearish on the surface, Schork wonders whether they were really all that bearish for RBOB — at least so bearish as to justify the scale of the move that followed.
The astounding thing in the data, he says, was that the refinery utilisation fell by 1.1 per cent at a time when it would ordinarily be rising (ahead of US driving season).
What’s more, in gasoline, it was only stocks in PADD 1 (the New York region) which registered an actual build, says Schork. But then again, this was the area that had been the key shortage point …
As he notes:
Consider that PADD 1 was the only region to even register a build… but what a build! At 3.508 MMbbls, we are practically tied with 1999′s 3.558 MMbbl as the largest ever seen in PADD 1 for the reference week. Consider that crude oil runs in PADD 1 have switched from a 46.37% YoY deficit for the week ending April 8th (due to power outages at Sunoco’s Marcus Hook refinery) to a 7.81% YoY deficit this week as refineries return to normal.
We will agree that the mogas data coming out of PADD 1 was bullish, as stocks fell for every single report between the week ending February 25th and April 29th, ten drops for a cumulative reduction of 16.82 MMbbls.
Although consider the context of the motor gasoline build against its historical average:
An inelastic snap back if ever there was one.
Which leads Schork to conclude that there’s only one good reason for the current situation. Refineries are not prepared to go out on a production limb when they are still fearful about unexpectedly high levels of demand destruction. After all, as he notes:
Despite the high crack, refiners could be increasingly concerned about consumer demand and we cannot disagree with them, mogas demand fell 0.117 MMbbls/d to just 8.83 MMbbls/d, the lowest level for the reference week since 2002.
And that’s why despite threats of Mississippi floods in refinery zones, refinery outages and other bullish indicators… prices are skittish.
Related links:
Commodity rout – Mark 2 – FT Alphaville
Gasoline Inventories Still Below Average – Bespoke Investment
Analysis: “Widowmaker” oil trade lives up to its name – Reuters