This is a cracking *cough* little note from Bank of America Merrill Lynch on soaring gasoline crack spreads… which are being driven by a spate of refinery closures which, as it turns out, are specifically impacting the New York Harbour market, known as PADD I, beyond all others.
This has generally resulted in a divergence in regional prices across the United States (mostly to the disadvantage of East Coast drivers).
As BofAML notes:
Despite being the middle of the winter, US RBOB gasoline crack spreads to Brent crude oil have soared by an astonishing $16/bbl in the past month (Chart 2).
This rather nice chart is from Goldman Sachs:
The Federal Trade Commission weighed into the intensifying debate in Washington about oil-market speculation, saying supply-and-demand forces drive gasoline prices, not speculative oil traders, the WSJ reports. The FTC didn’t investigate speculation independently, but reviewed the available research and found it inconclusive. The agency also looked at competition in the oil industry and whether it affected gasoline prices from 2005 to early 2011 in the report published on Thursday. The commission also said that gas prices rise faster than they fall, a phenomenon known as “asymmetric pricing” or “rockets and feathers,” an ABC consumer report adds.
Gasoline futures slid on Monday, weighing on crude, worsening a rout in the motor fuel as southern US refineries kept up operations in the face of a flood, the FT reports. Nymex June RBOB gasoline, used to make petrol, dropped 14.33 cents, or 4.7 per cent, to settle at $2.9311 a gallon in New York. The contract has fallen 11 per cent in the past week. Retail markets have already begun to react, with the average price of petrol falling half a cent last week to $3.96 after steadily increasing since January. The declines reverse a rally in gasoline, which had outpaced crude amid falling stocks in the US and a historic deluge on the Mississippi river that threatened to affect output from refineries in Louisiana state.
Gasoline futures have been blamed for triggering Wednesday’s collapse in oil markets, with the RBOB contract falling 8 per cent, FT Alphaville reports. However, it’s not clear whether ‘bearish’ EIA data on gasoline supplies were really such a bearish signal to sell after all. Refinery use has actually been falling even despite the beginning of the US driving season, apparently as refineries fear that demand destruction is on its way. In the meantime, the ‘widow-maker’ trade of going long gasoline futures against heating oil has lived up to its name once more, reports Reuters. Wednesday’s price move was the biggest drop in more than two years, with traders citing a large European company being forced to stop out of its trade, leading to a spike in volumes.
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? Read more
So here’s the story. Read more
The danger to refineries in Louisiana from Mississippi floods has sent US gasoline futures higher than crude prices despite the capitulation in oil markets, threatening to increase prices at the pump even further, according to the FT. Gasoline for June delivery has risen 1.5 per cent in the last week. Brent crude has fallen 4 per cent. Floods could disrupt deliveries of fuel via barges to states that are beyond the reach of pipelines, such as Florida, in addition to interrupting refineries. It’s the worst possible time for a shortage, FT Alphaville says. With refiners already stuck in Cushing syndrome, the market is on the cusp of the summer driving season and regulators are moving in to probe prices.
… because the gasoline crack (the difference between the price of crude and the price of gasoline — a key metric in determining whether there’s enough incentive for a refinery to process crude) is roofing.
So, even though oil prices have done this: Read more
And on Thursday that lining was apparent in the gasoline market.
As Stephen Schork of the Schork Report noted on Friday: Read more
John Kemp has an excellent column out Wednesday on the latest auto sales data, emphasising that buyers of US cars are increasingly shifting towards compact, fuel-efficient vehicles, and pointing to recent analyses arguing that $4 gas won’t reduce demand the way it did in 2008, mostly because of higher employment and better general economic conditions.
Kemp’s piece is also a handy primer on the methodology behind collecting data on US gas consumption. Read more
The US has become a net exporter of fuel for the first time for nearly 20 years as drivers struggle with high petrol prices, according to the FT. Energy department data show the world’s largest oil consumer in February shipped out 54,000 barrels more petroleum products each day than it purchased on the global market. After a five-year decline in net imports, the US became a net exporter in late 2010, a trend analysts say is confirmed by the latest data. Allgov.com says rather than match demand for gasoline, oil companies are producing less for the US market and exporting more to other countries, while taking increased profits. Higher gas prices are the product of the nation’s refineries operating at about 81 per cent of their production capacity, Allgov.com adds, citing the Department of Energy.
There are ongoing reports of fuel shortages across northern Japan.
However, as we pointed out previously, Japan’s inventory stock is actually pretty well positioned to deal with these sorts of shortages. Hence — if the problem lies anywhere — it is with the internal distribution network. Read more
Libya’s oil output has plunged by at least a fifth as foreign companies have shut down production, running the risk of turning the political crisis in the Middle East into an oil crisis, according to the FT. Oil prices surged on Tuesday after Eni of Italy and Repsol YPF of Spain, the largest oil producers in Libya, said they were shutting down output. Traders said two of the four oil ports in the country were also closed, and refineries have also been affected. Reuters adds that Brent crude futures are still rising in early trading on Wednesday, going up by $1 to $106.78 per barrel on growing fears that unrest in Libya could spread to other top oil producers in the region and cut output. ABC News says the average price of US gasoline is this week is $3.19 per gallon — the highest average February price since the government started keeping track in 1990.
There’s been some interesting commentary on Friday regarding the ongoing problem of the widening WTI- Brent spread, which struck a record wide in like-for-like basis terms on Thursday.
First this from John Kemp at Reuters, on the mechanics of arbitrage and the substantial physical hurdles to closing out the current window. Read more
Everyone loves a snow day.
And recent snowfalls across North America, it seems, have provided many with an excuse to take one. (That is, to stay at home for the day rather than to go to work or school.) Read more
The spread between the two main global oil benchmarks, West Texas Intermediate and Brent, is blowing out (again). And it’s been doing so for most of the month.
Could it be that nobody in the US wants gasoline anymore?
On Wednesday, John Kemp of Reuters observed how the combined stock of crude oil and refined products in commercial storage around the US had surged to 1.130bn barrels — the highest level since weekly records began in 1990. Read more
We didn’t say that..
Stephen Schork of the daily energy Schork report did. And here’s the graph, charting exactly that. Gasoline versus err, bimbos, by which he actually means entertainment spending in the US as a percentage of total consumption expenditure (the reference is to Snooki in case you’re really curious): Read more
The ever watchful Sean Corrigan at Diapason Commodities drew our attention on Monday to the state of outright net speculative length in crude products on the Nymex.
Here’s the chart: Read more
Vienna-based energy consultants JBC Energy have turned our attention to an interesting story on Friday.
According to Reuters, Chinese refineries will be scaling back crude runs by a sizeable 5.6 per cent in March. Read more
Here’s a story that’s currently topping the minds of most energy traders in Europe, via Bloomberg:
Feb. 22 (Bloomberg) — Total SA unions called for a refinery strike to spread to all French plants and said fuel shortages could be imminent. “The strike will be intensified and extended to all refineries,” Charles Foulard, a representative of the Confederation Generale du Travail union, said late yesterday after talks with Total management on ending the six-day walkout broke down without an agreement. He warned the labor disruption will create fuel shortages in France this week. Read more
Weekly US energy inventory data release on Wednesday confirmed the unbelievable. US petroleum stocks rose in the week despite especially cold weather in the region during the period.
Meanwhile, Dennis Gartman of the Gartman Letter draws attention to the fact that aggregate inventory rose by 8.9m barrels, amongst the largest weekly aggregate increase ever. Read more
Shares in Royal Dutch Shell took a bit of a walloping on Wednesday as reports circled the city the company was guiding analysts lower on fourth-quarter numbers:
WTI crude was trading sub $70 per barrel on Monday, a move which solidifies its breakout from a recent $70-80 trading range.
The big question facing the market now is whether prices will continue to trend lower ahead of the holidays, or garner some support from financial inflows.
As FT Alphaville reported, a number of US refineries have had to mothball plants in the last month due to poor product margins. Ironically, this action may now be beginning to boost product cracks (the difference between crude and product prices and what determines refinery profitability).
As Stephen Schork reports on Thursday: Read more
Take out some refinery production in the US amidst weak global demand for distillates, and what happens? The RBOB gasoline crack — the US benchmark measure of the difference between the price of crude and that of gasoline — strengthens to the point it’s trading at par with heating oil.
As JBC Energy note on Tuesday that’s actually a highly unusual situation for the time of year. As they explain: Read more
Last Friday, what many in the energy market had long suspected might happen, happened.
Valero, the largest independent refiner in the US, was forced to close another 200,000-plus barrel-per-day refinery — this time, its Delaware City unit — due to a lack of demand. The closure comes just three months after Valero shuttered its 235,000 barrel-per-day Aruba refinery in the Caribbean. Rival Sunoco, meanwhile, shut down a 150,000 barrel per day facility at Eagle Point in New Jersey in October.
These closures reflect just how badly the sector is doing, a fact which has also shown through in share prices: Read more
It’s day two of the Daily Mail’s campaign against tankers parked off the British coast. In case you missed “how the Daily Mail broke the story yesterday” you might care to check out FT Alphaville’s coverage here.
The post attracted a healthy level of discourse, including the following analogy — which we like so much we mocked up graphically for readers’ pleasure (H/T Skwosh): Read more
It appears there’s nothing like a a financial crisis to change a nation’s attitude towards driving and gasoline expenditure.
Note, for example, the following chart from Harry Tchilinguirian at BNP Paribas on Monday: Read more