ByBrad Zigler
That's "stocks" meaning inventories, not securities. Not that refiner stocks aren't doing well. They are.
The reason for refiners' good fortunes is cheap oil. Well, make that relatively cheap oil. There's plenty of West Texas Intermediate or equivalent grades to refine when an unusually cold winter has driven product prices higher.
Today, the U.S. Energy Department surprised both industry and Street prognosticator with its weekly report on oil and fuel inventories.
Overnight, traders had been digesting an American Petroleum Institute estimate showing domestic crude inventories falling by 3.1 million barrels. The report surprised analysts, who had forecast a buildup in supplies between 1.7 million and 2.0 million barrels.
Definitive government data showed domestic crude oil inventories actually increased by a mere 900,000 barrels. Still, the hike, which brings commercial stocks up to 345.9 million barrels, is the fifth consecutive weekly increase.
Stockpiles at the WTI delivery terminus in Cushing, Okla. were built up by 300,000 barrels to 37.7 million.
Gasoline inventories also increased, but again, government data showed a more modest increase—200,000 barrels—than either the industry or analysts expected. The API guessed a 1.7-million-barrel jump. Analysts' calls for an increase ranged widely between 400,000 and 1.5 million barrels.
Energy Department figures showing a 3.1-million-barrel drawdown in distillate inventories were also surprising. Supplies were expected to fall by only 834,000 barrels, according to the API, much less than the 1.6-million-barrel decrease forecast by the Street.
Refinery utilization dropped precipitously, to just 81.2 percent of capacity, according to the government. Gasoline output increased to a daily average of 9.2 million barrels, while distillate fuel production declined to 4.0 million barrels.
Current gasoline consumption remains unchanged from year-ago levels, at 8.6 million barrels per day. Distillate fuel demand now averages 3.8 million barrels per day, up 2.7 percent from this time last year.
Trading Week
Refining margins got a big boost by the continuing decline in the cost of West Texas Intermediate crude oil. Front-month WTI fell by 3.0 percent for the week ending Tuesday, but product prices remained firm. Gasoline was virtually unchanged, while heating oil inched up 0.1 percent.
Gasoline-rich "3-2-1" runs grossed 32.5 percent, a 4-point increase from last week's rate. Margins for distillate-heavy "2-1-1" operations rose by 4.1 points to 33.4 percent.
The steep increase in refiner margins is due to the combined bullishness in gasoline and middle distillate prices this winter. At this time of year, gains in gasoline prices typically outstrip heating oil's. This week, the heating oil/gasoline spread widened by 0.14 cents a gallon in favor of the heavier fuel.
Product Cracks
Even though ethanol prices rose this week, crush margins fell 5 cents a bushel as input corn prices rose and the proceeds from dry grain sales fell. The spread between ethanol and gasoline prices narrowed to 16.26 cents a gallon from 22.15 cents last week.
Brent's premium over WTI continued to widen, this week by another $2.48 a barrel. Meantime, the WTI curve made bear spreads—and oil storage—even more enticing. The net proceeds of a three-month carry rose from $4.10 to $5.99 a barrel, yielding an annualized return of 28 percent. Seen from another perspective, that's the negative roll yield for swapping long positions three months forward.
Average daily volume for WTI futures rose 27.5 percent to 995,792 contracts. Open interest declined by 1,149 contracts to 1.568 million.
Technical Picture
The front-month WTI market continues to be pressured lower after running into solid resistance at $93 at the top of the year. Technical indicators such as RSI, MACD and momentum all point southward for the near term.
Immediate support can be expected at $83.53 with resistance at the 10-day moving average of $87.43. Unless buyers step up, a test of the 200-day moving average—today at $80.80—is likely.
Swing traders should be watching the support levels at $83.49 and $82.61 and the resistance levels at $85.61 and $86.85.
Nearby WTI Crude Oil
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