2nd Update:

Well, we got that big surprise, primarily because crude imports were sharply down from last week. Some excerpts:

U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending November 16, down 151,000 barrels per day from the previous week’s average. Refineries operated at 87.0 percent of their operable capacity last week.

U.S. crude oil imports averaged over 9.8 million barrels per day last week, down 667,000 barrels per day from the previous week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 1.1 million barrels compared to the previous week. At 313.6 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year.

Total motor gasoline inventories increased by 0.2 million barrels last week, and are below the lower end of the average range. Distillate fuel inventories decreased by 2.4 million barrels, but are in the middle of the average range for this time of year. Total commercial petroleum inventories decreased by 6.9 million barrels last week, and are in the upper half of the average range for this time of year.

Updated: As oil stands again at the cusp of $100, here is what analysts expect for this week’s report report:

Analysts surveyed by Dow Jones Newswires, on average, predict that crude oil inventories rose by 800,000 barrels last week, while refinery use grew by 0.4 percentage point to 88.1 percent of capacity.

Gasoline inventories likely grew by 700,000 barrels, the analysts predicted, while inventories of distillates, which include heating oil and diesel fuel, fell by 400,000 barrels.

While oil supplies likely rose last week, prices were being supported Tuesday by concerns there would be a bullish surprise in the EIA report, such as an unexpected decline in inventories.

If we see that unexpected decline, then WTI should break $100.

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Last week, I noted that even though there was a very big surprise with respect to crude inventories, the market seemed slow to react. I indicated that it may have just been an artifact, and that was in fact what it turned out to be. I get my quotes from the NYMEX site, and those quotes are delayed by 15 minutes. So, no opportunities to make money as a result of a slow-moving market. Actually, I would have been stunned if traders weren’t poised to react to a large surprise in the report, but it seemed as if they weren’t. That’s why I posed the question.

In fact, someone posted a very interesting graph that suggests that in fact the movement in price happened prior to the release of the report:

December WTI Following Last Week’s TWIP Release

I know that graph is hard to read. Here is the link for the original graphic, in case you want to see the fine details. What it looks like is that about 4 minutes prior to the release of the inventory report, the price rapidly dropped over $1/bbl, implying that contracts were being dumped. This could of course be innocent; someone could have rolled the dice and guessed that the report would be bearish. That could also be due to the resolution on that graph (i.e., what you see above may have actually happened just after the report’s release).

But for a suspicious person like me, I started wondering about just how many people have access to this data. It would be very lucrative to sell some advance information, so I am curious as to how the EIA safeguards the early release of the numbers. How many people know the numbers before they are released? What safeguards exist to prevent someone from selling the information? Do any of the EIA’s employees drive a Ferrari? (kidding)

I asked Doug MacIntyre, author of This Week in Petroleum, if he could comment on this. Doug wrote:

Robert,

EIA understands completely the seriousness of our data and carefully safeguard it before it gets released. We know that a lot of money can be made if the data were known prematurely, and everyone involved is very careful not to divulge ANY information to ANYONE before the release. In fact, we even go a little farther and try not to comment on the data to the press until at least 1 hour after the data are released. I am confident that the data were not, and have not been compromised.

EIA will not discuss the specific procedures we do to safeguard the data or divulge the number of people that have access to the data, as we believe that any information regarding the procedures we follow should be safeguarded as much as the data.

Thanks for explaining that, Doug.

The supply situation is quickly coming to a head, and many questions will be answered in the coming weeks. Will OPEC increase oil production? Can they? Will there be any relief from rising gasoline prices? Will gasoline demand remain strong in the face of the recent price spike?

The trend at this time of the year – because some refineries are offline for maintenance – is that crude stocks are generally rising and gasoline is generally falling. (The trend for distillates is very dependent upon the weather). That has been the trend for several weeks, but this week crude oil inventories dipped slightly. This will happen as refineries start to come out of turnarounds, with the trend of falling crude inventories usually starting in mid-spring and continuing through the summer. Given that crude inventories are 12 million barrels below where they were at this time last year – and peak season is still in front of us – I expect that there will be a call for OPEC to open up the taps some before the end of summer.

Refinery utilization number crept up this week – from 86.3% to 87%. This may suggest that the majority of the turnarounds are complete, but if so that would be somewhat earlier than normal. It would not surprise me to see utilization dip again within the next couple of weeks before making a run to the upside of 90%.

Gasoline stocks fell for the 7th straight week, although by less than expected. This is because high wholesale prices in the U.S. always attract the attention of exporters, and a rash of gasoline imports did arrive this week. Gasoline imports rose above a million barrels per day for the first time since January. However, they will need to remain high else gasoline prices may continue to head higher. According to This Week in Petroleum:

To help gasoline supplies keep pace with demand increases that are likely over the next several weeks, total gasoline imports will need to remain above 1 million barrels per day most of the time.

While there are many statistics analysts can watch in monitoring gasoline market conditions, two statistics that they may want to add to their arsenal over the next several weeks are crude oil inputs to refineries and total gasoline imports. Combined with information on gasoline inventories and demand, they will provide a more enlightened picture of current market conditions and insight into which way gasoline prices might head. Until domestic gasoline production and imports both increase substantially, retail prices are not likely to experience a noticeable downturn.

Despite the higher prices, demand continues to run ahead of last year’s level:

Total products supplied over the last four-week period has averaged 21.1 million barrels per day, or 2.4 percent above the same period last year. Over the last four weeks, motor gasoline demand has averaged 9.2 million barrels per day, or
1.6 percent above the same period last year. Distillate fuel demand has averaged above 4.4 million barrels per day over the last four weeks, unchanged compared to the same period last year. Jet fuel demand is up 3.8 percent over the last four weeks compared to the same four-week period last year.

Stay tuned, as it promises to be a very interesting situation over the next few months.

I almost never talk about distillates, which are hydrocarbons that are heavier than gasoline and are used to make diesel and heating oil. I don’t use heating oil or diesel, so I don’t think about this market too much, but I know that a lot of people do. And for those who do, it’s shaping up to be at a minimum an expensive winter. I had seen this story earlier in the week:

Heating oil prices soar, elderly panic

A warm, summer-like day did nothing to ease the fears of the elderly women who walked into the Brockton senior center earlier this week seeking fuel assistance.

“They are panicking,” said Anne McCormack, the city’s director of elderly affairs.

And, they have reason to panic, say fuel oil dealers who are paying record-high prices and therefore charging record-high prices even before the winter cold sets in. The problem is even worse for those who rely on government fuel assistance programs, administrators say.

“Never in my lifetime,” veteran oil dealer Charlie Dyer of Raynham said about today’s prices. “It’s going to be a very difficult winter for customers, no doubt about it.”

And consumers will get no relief, as today the EIA announced a very large surprise drop in distillate inventories:

Oil rebounds to go above $80

In its weekly inventory report, the Energy Information Administration (EIA) said crude stocks gained by 1.2 million barrels last week. Analysts were looking for a decline of 400,000 barrels according to Dow Jones.

Gas inventories eased by 100,000 barrels, compared to the 400,000 gain predicted by analysts. Distillates, used to make heating oil and diesel fuel, fell by 1.2 million barrels. Analysts were looking for an increase of 700,000 barrels in distillate supplies.

In the inventory report, EIA said refineries operated at 87.5 percent capacity, falling just shy of expectations.

Some analysts predict crude is set to drop $10 to $15 a barrel over the next couple of months as the fundamentals aren’t there to support $80 oil. Others say $100 a barrel is just around the corner, especially in the event of a surprise disruption in supplies.

So, here’s the score heading into the 4th quarter: Gasoline inventories remain at record-low levels. Distillate inventories, at 134 million barrels, are 16 million barrels lower than at this time last year (but not terribly low by historical standards). But distillate prices are $0.65/gallon higher than they were a year ago, meaning fuel oil bills are going to be much higher than normal. Crude oil inventories have fallen over the past couple of months, but are still historically high. I think the big story remains gasoline, and whether we can dig our way out of this hole over the fall and winter. If not, something’s got to give next spring.