Tag: refinery utilization

80 million barrels of oil floating in the ocean, owners betting and hoping for higher prices

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Just to warn you, this post will be a bit lengthy, but may be incredibly insightful for some. First off, it looks like Ed has predicted a hike to $1.99. We’ll see if he’s right on… if you can get gas for around $1.80, fill up like I did tonight just in case. I’m not completely sold on a price hike, but we will see what happens.

Now to explain my post title. Was there a ship leak or some accident? No. There ARE 80 million barrels of oil floating on the sea protected by a thin layer of steel, sitting in huge supertankers. According to Bloomberg, Frontline Ltd., the world’s biggest owner of said tankers has made this claim. It would be the most oil stored at sea in 20 years, as traders seek to cash in on higher prices later in the year.

This is an idea that carries a good amount of risk if you ask me… but you don’t make money without risk. Oil prices haven’t really started a good climb yet this year, and prices have largely given up most of their gains they made the last two weeks. These supertankers are huge ships that cost large amounts of money to lease but some can hold well over a million barrels of oil. If prices jump $10/bbl, there’s a large amount to be gained. However, with oil supplies in Cushing, Oklahoma nearly at capacity (the delivery point for contracts traded on the NYMEX), what’s going to happen? We’re already awash in oil, sitting nearly 40 million barrels above where we were JUST LAST YEAR! Crude oil in storage this week, as reported by the DOE, was 326.6 million barrels. Like I said, storage in Cushing, OK, was at 33 million barrels, with capacity of 34 million barrels. This represents a 20% GAIN in oil inventories there in just 4 WEEKS! How are these traders betting on higher prices in a few months when we’re lush with oil in a recession?

Figuring those 80 million barrels could go anywhere in the world, let’s figure half goes to the U.S., the world’s leading consumer of oil. If that 40 million barrels (which is doing nothing) would eventually end up at U.S. ports in a few weeks, we could have the most oil in storage since September 21, 1990!
Even WITHOUT the 40 million barrels, we’re already at our highest level of storage for a January since 1999, when demand was strong and the economy was surging ahead… remember the .com era? So many startup companies… and to see us at the same level of oil now with a much different outlook?

Let’s throw a name out here… a banking company that used to actively trade oil contracts (and bet on higher prices). Remember Goldman Sachs? The company whose analysts predicted $150 oil? What ever happened to them? They seem to have gotten out of the oil trading business. Goldman is now forecasting oil prices in the $30’s for quite some time. Do they have any obvious interests in oil now? Not that I can see- and crazy enough they’re actually making some sense with their seemingly non-biased oil price forecasts!

What’s this all got to do with gas prices?

Lets think it over. I’ll even format it so it’s easy to read:

  • U.S. January oil inventories highest since 1999 and economic outlook is much worse than that of 1999
  • 80 million barrels of crude oil haven’t even hit the market, owners betting on higher prices
  • Gasoline inventories healthy
  • Excluding 2006 and two weeks in 2007, oil inventories (including SPR) are at their highest levels EVER
  • Gasoline demand down 3-4%
  • Diesel demand down 4-5%
  • Jet fuel demand down 12-15%
  • OPEC countries need to pump more to generate revenues
  • Refinery utilization at just 85% and we’re still putting plenty of gasoline into storage

Point is-with such great news on the shape of oil inventories, how can oil and/or gasoline make a spring run-up in prices? Ed’s bet that we’d see $2 gas before we saw $1 gas is nearly the OFFICIAL winner, but I still think prices have more room to fall.

My short-term bet on oil (the next two months) is that prices fluctuate between $30-$45, but we may briefly break the $30 barrier. A gasoline prediction? I’ve already had that bet with Ed. Once he wins, MAYBE I’ll make another prediction.

Patrick

Wholesale gasoline market opens 10-cents higher approaches

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UPDATE 4:50pm EDT: LOOP (Louisiana OffShore Oil Port) has been closed. Gustav is forecast to hit it directly. Any damage to LOOP would be catastrophic to the county and could raise oil prices $10 or more per barrel. This port provides over 1-million barrels of oil per DAY to the United States (via Middle East ships)

The wholesale market opened at 2:30pm EDT, as it always does Sunday afternoons for overseas trading. Gasoline has taken a large jump higher, currently holding at a 10-cent gain. Crude oil is up a marginal $2.50/bbl at this hour as well.

When Katrina hit, wholesale gasoline prices had easily seen swings of 50+cents/gallon. Today, SO FAR, its just 10-cents. Hopefully it will stay there.

I just crunched the numbers- with 2.2mb of refinery utilization shut (as of 3pm Sunday), the *remaining* refiners must ALL boost their utilization to 99.5% to cover for the refineries that have shut. That seems unlikely, but it IS possible. This should LIMIT any large hike in wholesale prices.

Keep an eye here today as I continue to monitor Gustav and refinery, rig, and industry news that could cause a prices to rise to over $4/gal again.

Currently, I would plan on filling up TONIGHT for $3.75 or less if possible, and brace for a price hike pending what happens on the market.

If we see a hike, it could be to $3.89, but again, that depends on the next few hours.

This situation reminds me of the night before Katrina hit and I filled up the night before prices took a huge jump. That COULD happen again. If you hear rumors, be sure to check here or feel free to comment and let us know what you’ve heard.

Patrick

Gustav, Hannah, and Tropical formations, oh my!

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Note: I decided I had better take a quick break from vacation. I was away hiking in Yellowstone, please forgive me for not posting.

When my phone got service yesterday, I had received numerous voice-mails informing me that a Hurricane “Gustav” had formed and could be effecting gas prices. Unfortunately I’ve been out of the loop- until now.

Gustav looks like it will be a dangerous category three or four when it hits Louisiana later this week. What’s this going to do to gas prices? Well, for the time being, the market is calm. One must realize that after Katrina, refineries and rigs have been much improved when it comes to large hurricanes. Also, refiners haven’t been producing as much gasoline as before Katrina.

With refinery utilization continuing to be much below 90%, any negative impact on Gulf refiners could be offset by all other refiners raising their utilization to 95%+. When Katrina hit in 2005, refinery utilization had been at 97.1%. With utilization THAT high and Katrina flooding refiners, there was no way that other refiners could up their production much. Last week, utilization was a measly 87.3%. Any capacity that goes offline could be offset by other refiners raising production runs.

Also, those refiners in the Gulf area have poured money into making their rigs and refineries better prepared for massive hurricanes. They didn’t just repair their facilities… they made them better.

The market may jump to its senses, but if we don’t see more than a 10-cent gain, you’ll see traders viewing that as a weakness in the market. We’re also helped by a continued gain in the U.S. dollar against the Euro.

It’ll be interesting to see what oil and gas does when trading opens Sunday.

I would definitely stay tuned here… I’ll be home early this week with more information as I receive it. We could see prices rise, but things are calm… for now! I see prices in GR falling to $3.70. Prices may continue their fall until Gustav gets closer to making landfall.

Patrick

Another lousy DOE report, Speedway hikes to $3.95

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Edit: Speedway has just hiked to $3.95 in Michigan; while not totally shocking, this is something that might have been expected. The Gas Game gets quite difficult to predict at times like this!

Another disappointing report from the Dept. of Energy this week, we can look for gasoline to trade higher today.

Perhaps due to the Hurricane/Tropical Storms last week, the DOE reported refinery utilization at just 85.9%, with crude oil inventories falling 400,000 barrels (LOOP was closed [Louisiana Offshore Oil Platform] last week) which likely altered crude import numbers, but gasoline… OUCH! Gasoline inventories fell a massive 6.4 million barrels last week, putting us now in the lower part of the average range, and putting us almost exactly at the same amount of gasoline in inventories as this week in 2007.

In a month we’ve consumed 14.3 million barrels (600.6 million gallons) of gasoline more than were refined. Amazing! Look for that stat to perhaps spook traders as they see some bullish numbers coming in. I definitely expect gasoline to trade higher today, perhaps triggering a hike in the Grand Rapids area… more on that later today IF necessary.

Also, the SPR is STILL adding barrels to its massive storage?! Didn’t the Dept. of Energy state that with oil prices so high they were going to delay deliveries to the SPR in mid-to-late July? It hasn’t happened! This week the SPR sits at 707.2mb, last week 706.8mb and last year at 690.3mb. Just more empty promises from government to do something positive for the market.

Look for gasoline to pull oil higher as traders get some bullish news.

Patrick

PS- Midwest PADD storage fell to 48mb this past week, look for the Chicago Premium to start hurting soon!

Terrible DOE report, wholesale prices likely to climb

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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!

Patrick

Here we go! Spring run-up in prices set to begin!

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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!

Patrick

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