Seeing as how refiners were losing money for parts of this week refining oil into gasoline, utilization was low. It is rare, but refiners were losing some money last week as the cost of a barrel of oil was *more expensive* than the cost of their finished gasoline. They were losing cents on refining every gallon of gasoline.
Having said that, here are some numbers:
- Refinery utilization dropped to 82.2%- until the “crack spread” or earnings for each barrel of gasoline exceeds the cost of a barrel of crude, this will stay low. The only way that utilization will rise is if pump prices rise.
- Crude oil inventories remained unchanged from last week, even though much less crude was produced/imported than usual.
- Gasoline stockpiles fell 3.3 million barrels. This isn’t a surprise due to the issues I stated above about no profit from refining
- Midwest PADD storage fell to 56+ million barrels from 59+. This is a large drop and we may see any Chicago Discount begin to dry up.
This was a bad report, but local stations have already hiked to way over my previous target of 3.25-3.29. I believe we may see a rehike tomorrow to $3.45-$3.49, so keep an eye out between 9am-10am.
We’re back to usual here folks- pump prices will “march” higher to begin April!
Before opening the DOE report today, one day later than normal because of President’s Day, I thought how much today’s report could either help or hurt. Well, after reading through all the numbers and descriptions, I think is report is some much needed good news; however, it does not come without some concerns.
My concern: refineries operated at a dismal 83.5% of capacity, the lowest utilization in recent years.
The better news:
Midwest gasoline storage is nearing its peak (PADD 2) again. Last year we hit 57 million barrels, and last week the Midwest gained 2 million barrels of gasoline (Are these Winter Storms really helping slow demand that much?) We’re currently sitting at 56 million barrels.
Total gasoline inventories rose by 1.1 million barrels, and we’re ahead of last year’s numbers by about 8% which definitely is good.
Total oil inventories rose by 4.2 million barrels, and we’re still behind of last year’s numbers by about 4%. However, we’ve gained 24 million barrels of oil the last 9 weeks- pretty impressive! (However, much of that could be due to lower refinery production)
Overall petroleum demand is down 1.1% over last year.
We should start seeing the Chicago Discount really kick in as supplies have continued to climb in the Midwest… this could help Michigan stay under the national average for gasoline.
I’ll be watching closely for more refinery trouble as some refineries start to switch from heating fuel to summer gasoline- there are bound to be issues… and with oil prices so high (hardly any refining profit, thus the reduced utilization), we’re bound to have some refineries continue their low utilization rates.
Due to the Chicago Discount, we have an equal chance of seeing a hike to 3.29 or no hike… its hard to tell at this point.
After watching the market the last week, I’m semi-convinced that we’re starting to see the “Spring Run-up” in prices. Last week gasoline traded roughly 20 cents cheaper on the wholesale market, and today, we’re at 2.40+ on the wholesale market. Last year, the run-up began in late January/early February. The question is- how high will we go?
Thats a tough call at this point- refiners aren’t producing much because of the terrible profit margins. Thus we’re seeing refinery utilization rates in the mid-80’s. Yesterday’s DOE report wasn’t the best, supporting the bulls on the market, and with the cold weather, fuel will be in higher demand.
At this point, I believe a national average of $3.50 or more is likely with this year’s run-up. However, the heart of the Midwest produces much of the U.S. supply of ethanol. Will that help keep our prices slightly lower? Perhaps. Usually Michigan is slightly higher in the Spring than the nation, so we’ll have to see. The worst is yet to come, so if you want, fill up all your storage containers, because it will get bumpy!
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Wow… today’s DOE report was a terrific read. I read a lot of good news from this week’s report on petroleum inventories.
As typical, let me highlight some of it:
- Oil inventories rose by 7 million barrels, pushing them into the middle of the average range
- Gasoline inventories rose by 3.6 million barrels, keeping them above the upper limit of the average range
- Huge gasoline gain DESPITE much lower refinery utilization (see cons)
- Midwest (PADD 2) inventories sit at 54.4 million barrels, their highest level since March
- Chicago Discount could slowly work out to market as storage nears its limits
- Refinery utilization slipped to 84.3% of capacity. This is the lowest I can remember in quite some time
- Distillate inventories gained virtually nothing (100,000 barrels)
Overall a good report, with the Midwest PADD being in excellent condition. We can expect to see the Chicago Discount start to appear as storage facilities near their storage limits soon. This could be anywhere from 3 to 7 cents per gallon. I don’t see any reason for a hike at this time.
Prices should work down to possibly as low as the 2.70s. We’ll see!
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With the DOE’s weekly energy report being released just moments ago, here are some highlights:
>Refinery Utilization… YES!! Finally! 91.3% of capacity. This is JUST what we needed to slow the rise in gas prices!
>Gasoline Demand… rose 0.4% compared to the same time last year, which is quite surprising… last year we had (I’m sure you remember) very “cheap” gasoline (in fact, it bottomed out UNDER $2). Demand GREW this year with prices being nearly $1.50 more per gallon? What is going on America!?
>Oil inventories… Not good… dropped by nearly 7 million barrels. We’re looking at nearly 30 million barrels less of oil than just months ago. This number is significant and MAY support $100 oil
>Gasoline inventories… GOOD! Rose by over 5 million barrels to put us in the important ABOVE AVERAGE range for the first time in months! This will help slow the rise in retail prices.
>Distillate inventories (diesel and heating oil)… Good! Rose by 1.5 million barrels to bring them to the lower half of the average range.
We had, in my mind, a good DOE report, but the bulls might initiate another round of $100 oil as we start to see the effects of a loss in oil supply from OPEC. We really need OPEC to boost production now before we run into a bigger situation when spring rolls around!
Look for oil to distance itself from gasoline today.
Oil will trade higher, gasoline should fall. We’ll see!
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