This Week In Petroleum (TWIP)
Posted by Nate Hagens on June 20, 2007 - 5:59pm
Topic: Supply/Production
Tags: crude oil, eia, gasoline, inventories, twip [list all tags]
This morning at 10:30 am EST, the Department of Energy released their weekly supply reports for crude oil and refined products. Gasoline stocks increased for the 7th consecutive week, and the build of 1.79 million barrels to 203.3 million barrels was higher than the market expectation of a 1.19 mb rise. Gasoline prices initially sold off 2 cents, paused for a while, then dropped sharply and spent most of the day down 5-6 cents. In the last 30 minutes of trading however, the prices rallied back to finish only down 1.5 cents on the day. Crude, after being down $2 at one point, closed down 75 cents.
Robert is on vacation so I'm posting the text of the report for those interested, along with some comments from a prominent Wall Street analyst, Paul Cheng, of Lehman Brothers. The TWIP (the text that accompanies the data released at 1pm), and some thoughts below the fold.
THIS WEEK IN PETROLEUM (6/20) Original can be found here
Winter in June?
The 4.7-million-barrel (13 percent) drop in high-sulfur distillate fuel inventories between May 11 and June 15, could have some oil analysts wondering if the world has shifted such that we are now in the southern hemisphere, where it is winter time! These inventories are often referred to as heating oil inventories, since heating represents a major use of high-sulfur (500 parts per million [ppm] or greater) distillate fuel. The drop comes at a time when many analysts would expect heating oil inventories to be building for the upcoming winter season. However, high-sulfur distillate fuel is used for more than just heating oil, and this may explain why we have seen stocks fall in recent weeks.
As of June 2007, pursuant to Environmental Protection Agency (EPA) rules, fuel suppliers are no longer distributing distillate fuel containing more than 500 ppm sulfur for non-road diesel, locomotive, and marine use. (Some exceptions exist.) Instead, these markets are now supplied mainly with lower sulfur fuels. Using data from 2000 and 2001, EPA, during its rulemaking process, suggested that the markets affected by this rule represented more than half of the overall demand for high-sulfur distillate fuel. EIA analysts reached a similar result using more recent data from the 2005 fuel oil and kerosene sales.
The significant reduction in overall demand for high-sulfur distillate fuel strongly impacts inventory needs. Indeed, if desired inventories are proportional to demand, it would not be surprising to see half of the high-sulfur distillate fuel inventories shift to lower sulfur categories over some time period. This means that comparing high-sulfur distillate fuel inventories to historical data, such as a 5-year average, will be misleading, as the high-sulfur market is dramatically smaller now compared to recent years. Conversely, historical comparisons involving the combination of less-than-15 ppm sulfur and 15 ppm-to-500 ppm sulfur distillate fuel will also be misleading, since with more demand shifted to these markets, one would now expect inventories to be significantly higher.
For the time being, analysts seeking an undistorted perspective can focus on total distillate fuel inventories in doing any analysis related to heating oil or diesel fuel. As Figure 5 in the Weekly Petroleum Status Report indicates, current stocks of distillate fuel are in the upper half of the average range for this time of year.
Gasoline Prices Down, Diesel Higher
For the fourth consecutive week, the U.S. average retail price for regular gasoline decreased, falling 6.7 cents to 300.9 cents per gallon as of June 18, 2007. Prices are 13.8 cents per gallon higher than this time last year. All regions reported price decreases. East Coast prices dropped 4.6 cents to 297.6 cents per gallon. The largest regional decrease was in the Midwest, where prices fell 8.9 cents to 298.4 cents per gallon, while prices for the Gulf Coast decreased 5.9 cents to 290.3 cents per gallon. Rocky Mountain prices fell 4.4 cents to 318.1 cents per gallon but remain 33.8 cents per gallon above last year's price. West Coast prices were down 7.7 cents to 318.8 cents per gallon. The average price for regular grade in California was down 8.4 cents to 323.6 cents per gallon.
Retail diesel prices rose this week, climbing 1.3 cents to 280.5 cents per gallon. Prices are 11.0 cents per gallon lower than at this time last year. East Coast prices were up 1.1 cents to 280.0 cents per gallon. In the Midwest, prices increased 2.1 cents to 277.4 cents per gallon, while the Gulf Coast saw a rise of 1.1 cents to 275.3 cents per gallon. The Rocky Mountain region had the only drop in prices, down 3.0 cents to 290.7 cents per gallon. The West Coast price rose 1.7 cents to 295.8 cents per gallon. California prices grew 3.6 cents to 303.3 cents per gallon, but remain 15.2 cents per gallon lower than at this time last year.
Propane Inventories Sharply Higher
Propane stockholders reported sharply higher inventories last week with a 2.8-million-barrel gain that moved the nation’s primary propane supply up to an estimated 39.7 million barrels as of June 15, 2007. However, total propane inventories continue to lag prior year levels by more than 5 million barrels. Gulf Coast inventories posted the largest weekly gain of 1.8 million barrels, followed by the next largest weekly gain of 0.8 million barrels added to Midwest inventories. The East Coast was relatively unchanged while the combined Rocky Mountain/West Coast regions reported a 0.1-million-barrel gain during this same time. Propylene non-fuel use inventories edged up by 0.1 million barrels and accounted for a smaller 6.7 percent of total propane/propylene inventories from the prior week’s 7.1 percent share.
Paul Cheng, a well know energy analyst at my former firm, Lehman Brothers, had this to say on an afternoon research note:
"We think todays (6/20) DOE report was bearish for the petroleum complex in light of the more than expected buildup in total gasoline inventory, reflected in the 11% jump in imports. Although the market had expected utilization to increase this week, we are not surprised by the drop given the spillover effect for a wave of accidents from a couple weeks ago. However, we expect the utilization rate to jump more than 2% in the next weekm reflecting more than 400 m/bd of crude capacity that have recently returned to expectation. As a side observation, it appears the DOE may have overstated both the production, and correspondingly the implied demand on gasoline. We continue to hold a bearish view on refining margins and think that gasoline inventories could continue its counter-seasonal build of an average of 1-1.5 mmbls in the coming weeks, of which 500-600mmbls are attributable to finished gasoline"
Crack Spread vs Inventories - Source - Paul Y Cheng Lehman Brothers Equity Research
In other words, the market is well supplied in the very short term, and since markets are efficient, this news incrementally should move oil and oil stock prices lower. The refinery issues from a few weeks ago resulting in near record crack spreads (gasoline - crude oil) seem to be resolving and the market should be returning to a more normal relationship.
After reading this, it all seemed very plausible (boring?), with the one exception that I was again struck by how our focus on the present is reinforced by the market mechanism. Traders base investment/speculation decisions on insights gleaned from how a 1 week update changes the previously accepted wisdom, a little bit at the margin, each week. If change (via the markets) is made through the summation of a bunch of tiny changes, I wonder how many of these one week updates in a row it will take, at some unknown date in the future, to significantly change the "previously accepted wisdom"?
On an unrelated, but interesting note, wheat futures hit an all time high today.
(Note: Here is the NYMEX crack spread calculator)
I continue to wonder what is happening in non-OECD countries: http://en.wikipedia.org/wiki/Image:OECD-memberstates.png
Can I fill my tank with "blending components."?
pretty much. Refiners hold bits and pieces separate to optimize their blending operations.
It's not that big a deal to move those pieces into finished gas.
"Crackspread" sounds obscene.
yea like toe jam...
Or...in my current position my long crack spread is exposed.
:-)
A very large build in total oil stocks.
------------------------------------------------------------
Total Stocks (Excl SPR) (7):
Week ending 06/15/07: 1,017.8
Week ending 06/08/07: 1,007.9
From the EIA weekly petroleum inventory report.
------------------------------------------------------------
A build of 9.9 million barrels of oil/products in one week
Sad day for oil bulls.
I read on peakoil.com that this might have been because oil that was being held in tankers offshore was offloaded this week. Not sure if its true but it makes sense.
It seems to ALWAYS be that there were tankers held in reserve to pump up the inventory numbers, so we can focus on that excuses instead of the fact that total imports are up over last year. Damn those pesky hidden tankers!!
It was announced that they would do this.
Here is the thread on peakoil.com
http://www.peakoil.com/fortopic28807-0-asc-270.html
They have a pretty good analysis each week.
Btw I don't think anyone expects the US to run low on oil until its in a serious bidding war with other wealthy countries for gasoline and oil. The problem right now is gasoline we seem for some reason to have allowed our gasoline stocks to drop dangerously low without bidding higher for imports. I think the reasonable glut in crude is a result of expectation that refinery utilization would be much higher than it is.
If you read back on the peakoil.com threads you would see that if we had been running our refineries at capacity we would not have a mini glut of oil like we do now. Next I suspect stocking up just in case there is a hurricane is also part of the issue. In any case the repeated inability to get our refinery utilization up is causing real problems in the market. We are seeing plenty of oil plenty of blending components but no gasoline. This means we will again have to bid on the world markets for gasoline imports leading to higher prices.
Outside of the unexpected deficiency in gasoline this summer I don't think anyone really expects the US to run out of oil or even run low this year and into next year. However I do expect us to be in a bidding war for real sometime next year. The problems this year are strictly related to refinery problems in the US. However the low gasoline stocks are a indication that we have to bid a fairly high price for gasoline imports this is a new event.
And finally the fact we can get gasoline for a price makes the OPEC claim of any sort of overall refinery capacity issue suspect since we have been able to get all the gasoline we want for a price without shortages occurring in the exporting countries. So looking beyond the local refining issues in the US we do see signs of peak oil caused by the relatively high bid price needed to attract gasoline imports. We should be at 4 bucks a gallon and importing gasoline like mad the fact we are not is setting the stage for possible shortages this summer esp if we don't get refinery utilization up soon. Especially if we have a hurricane that effects the refineries. This would force us to overbid in a sense on gasoline imports and could well lead to real shortages in gasoline if we actually have a shortage of refining capacity. Its worth watching.
The problem I have with your statements is that you, and you are not alone, fail to take into consideration the refinery upgrades that have been put into place over the last couple of years. There is a growing trend to 'cook' the oil thats left over after normal gasoline/diesel/jet fuel cracking to make yet more GDJ.
If we are squeezing another 6 gallons per barrel out at even half of our national refineries, then we need to utilize much LESS of our refinery capacity to produce the same amount of gas. This week is a perfect example of that concept.
Remember guys, 90%+ utilization is NOT normal, nor is it healthy! You will have a LOT of mechanical problems at that ratio. The only question I see today is how high will asphalt prices go.
Hmm we routinely hit 90+ in the summer months of peak demand.
So I don't think this is correct. I believe 93% or so is the norm during the summer driving season. In general you want to be at around 90% utilization if possible.
Next the coking is as far as I know for the heavy oils although I guess if you have one and are running light sweet you would also run a coker. I'd say configuring a coker for light sweet is fairly rare I'm not sure its even economical. The coker is to break up the asphaltenes in the heavier oil otherwise the yields would be much lower. Since we import a significant quantity of gasoline we can easily utilize all our refining capacity and still not meet demand.
You may want to read this to get a understanding of where a coker unit fits.
http://www.lloydminsterheavyoil.com/upgraderlaunch.htm
Notice they are using it only for heavy oils. The lighter grades can be cracked with other methods.
Finally this is Canadian refineries but you can see utilization above 90% is the norm not and exception as you claim.
http://www2.nrcan.gc.ca/es/erb/prb/english/View.asp?x=686&oid=1171
And last but not least you can google all this in a few minutes before you post so I don't have to debunk your statements.
And I guess you have not read my numerous posts on the increase use of cokers and the potential effect on asphalt prices.
If I recall, Robert stated that refinery utilization was in the mid 70's about 2 decades ago. So clearly it hasn't always been in the 90s as they have been these last few years. I guess 'normal' comes down to what time period we wish to define it by. I choose to look at trends that are just a 'tad' longer than 2 years or so :)
Memmel was correct.
http://tonto.eia.doe.gov/dnav/pet/hist/wpuleus34.htm
Utilization rates of over 90% are very common during the summer for the last 15 years. Its no where close to the mid 70's that you claim.
You're lucky RR is on vacation.
Where is the data for the years prior to 1991? 2 or so decades goes quite a bit further than you are letting us all onto.
http://dnr.louisiana.gov/sec/execdiv/techasmt/oil_gas/refineries/refinin...
Now, haven't we been through this subject before? Please, watch what you say :)
we added refinery capacity like crazy in the 70's when crude was $4/bbl and people thought crude demand worldwide would be 100 MMBD by now. Bad call. that left a ton of mangy capacity unable to compete once crude jumped up dramatically. That capacity remained operable, just utterly un-economic. They were units designed to make gobs of fuel oil for thermal electricity generation which made no sense once crude became expensive relative to coal or gas. Also their own energy efficiency was horrid as they were optimized for crude at $4/bbl. No payout for air preheaters, feed/effluent heat exchange etc at that low price.
No refiner will be happy with 70% op factor. They want to run full all the time as the last bbls are the most profitable since the fixed costs are already covered.
You claimed:
I presented you with eia data that shows 90%+ utilization is very much normal and has been for 15 years not the 2 years you claimed.
It is very clear that you were wrong.
I think there is a little disconnect here, Rethin. Perhaps you would care to actually READ the article that I linked? There is a wealth of information out there that shows we had far too much refinery capacity in the 70s and 80s. With the over capacity, margins were thinner, but a mechanical problem at one refinery wouldn't cause any systemic shortage of gasoline. What we find ourselves in today is a wonderful conundrum sponsored entirely by Big Oil's greed via shutting down a large number of our refineries in the past to shore up low profit margins.
So no, 90% is not 'normal' from an historical stand point. Perhaps its 'normal' in our Just-In-Time gas distribution system we now find ourselves in :)
You are clearly just trolling.
I don't understand why you think that, and I don't think that is fair at all. You seem to be the only person that is unwilling to acknowledge that we did utilize far less refinery capacity during peak months in the not so distant past. How sad that instead of examining the data for yourself you simply decide to engage in name calling.
nope. he's not trolling. You are clearly wrong.
Yes there was a period with a great deal of "operable" capacity that in truth never operated again. 70% OP factor is NOT in any way acceptable or normal. No refiner could make money like that. What you had was 12 MMBD of capacity that ran 85-95% of the time and another 5 MMBD in mothballs.
Hang on a sec here.
Perhaps you are confusing who's who here.
I, Rethin, am presenting evidence that 90+% utilization is normal and desired.
Partyguy, Troll, is claiming 70% is desired and the past 15 years of utilization rates are both unhealthy and not normal.
sorry. I'm with you 100% (well maybe with a 95% op factor) ) on this one. I question whether he's a troll though either. Pig headed I'll agree to ;).
lots of non technical people here with weird ideas of how the industry really works. And quite a bit of "don't confuse me with facts, my mind's made up".
By his comments here alone, I agree troll is a little bit of a harsh label.
But I think I know this guy by his MO. An old troll that went by the name hothgor. I suspect this isn't his only sock puppet either, but have no way of knowing for sure.
Also, reading though your comments I'm impressed with the depth of knowledge and experience you bring. Please don't be put off by the ignorance some of us show here (my self included unfortunatly). I'm sure I'm not alone in appreciating your input.
He is claiming this is normal its far from normal. 80-85% with burst above 90% is normal for most chemical plants. Most cannot even operate as low as 70% capacity the plant simply won't function correctly. I don't know about refineries in particular but I can't see them being much different from any other chemical plant I think they are fluidized bed reactors for their crackers from what I can tell these have to run at a certain load factor which is basically full or it does not function. The hydrogenation steps are also probably constrained to a load range. Cokers etc etc. It does not seem feasible to run a plant except at 80% plus capacity unless you take down a whole train.
we used to design for about a 60% min operating level when we could. Modern distillation equipment can do that. Some fixed bed reactors need enough flow to get a decent pressure drop to ensure everything spreads out -- don't want areas with no flow leading to coke balls etc. But you can keep gas recycle rates up at a cost in energy. I doubt there are very many fluid bed FCC's any more. They mostly used very short residence time reactor designs to maximize gasoline yield while minimizing gas yields. The regenerator side is still fluid but nothing keeps you from tweaking air rates up a shade. many plants have 3 X 50% pumps instead of 2 X 100% which makes turndown easier.
And I'll say again, the low op factors in the 80's came from many many ragged old plants not running at all and then being dismantled (see Wyden's list of dead refineries -- mangy old pieces of shit that were horrible neighbors, tiny tea kettles or just ancient and uneconomic). Those that were running were running with high op factors and throughputs as the refiners played "who will crack first and cut runs". The biggest and best never backed off (eg Chevron Pascagoula after their $1 billion revamp 1980-83). Terrible return on that capital, but with the costs suck, they ran full.
How far do you want to go back? 1600?
> seems to ALWAYS be that there were tankers held in reserve
I'm not really into conspiracy theories, but if, as RR has suggested, the peak coulda/shoulda been higher than 83 mbpd then is it possible that some "rogue" organization within OPEC is exporting oil on the side for their own private benefit? It could explain inventory conundrums.
Feel free to question the official number and don't believe the decimal places. I give them +/- 2mbd as my estimate of the accuracy. Nigeria and I'm sure Iraq export a reasonable amount of uncounted oil. In this case I believe the real numbers are probably higher than the official numbers. The down side is I suspect consumption in the producing countries is also higher than official numbers indicate. But you have to figure smuggling of finished products outside of countries that subsidize gasoline/diesel is big. Next people forget that in export land countries like KSA that are keeping exports constant are increasing production because internal demand is still increasing. Every day their spare capacity is eaten away.
it doesn't make sense and I'd want to see serious hard evidence before accepting this idea as anything but a conspiracy theory meme loved by those that think everything oilco's do is based on the dark side of the force.
IIRC oil is considered in inventory for EIA/DOE/API purposes if the shipment has been fully discharged and the figures set for billing purposes. Refiners don't report cargos currently being pumped. You just have to pick some rule and stick with it and it balances out over time. Considering we import 10 million bbls/day, even if you assume an average ship size of 1 MMBD that's 10 ships on the berth every day. It's probably more as the product tankers are more like 250 KB and some crude is taken off by lightering ships which are smaller in size.
Before you give into the conspiracy paranoia, keep in mind these ships cost $30K+ a day to park idle. The shipowners make more than than moving so they have no desire to just ac as floating storage unless they are on long term charter at a daily rate. Many ports/berths are controlled by government agencies. They move traffic to fit everyone's needs. They aren't going to play silly games for some trader. It's not impossible for a company to order a ship to only tender NOR (notice of readiness to discharge) to themselves and not the port facilities but it would be hard to jigger that to truly manipulate the weekly figures enough to matter. Moreover, anyone with sense looks at rolling averages to smooth out those sorts of swings and round abouts.
The majors don't own that much of the shipping anymore. Nor do any of the trade types. With diverse ownership of the vessels and pretty much transparent data on where ships are at any time available if you talk to a few ship brokers, it would be damn near impossible to hide a significant amount of oil on the water.
The whole idea is silly. But hey, it's a lot more fun to dream of star chambers and evil cabals.
I gave the link to the thread peakoil.com does not have a easy way to link responses.
http://www.peakoil.com/fortopic28807-285.html
And I'd like to add you don't have any reason to slam me I try to always provide links. You may not agree with my point of view but I don't troll I'm honest and I feel I've contributed. I don't agree with a lot of your comments but hopefully I'm not offensive. I was reporting what I read and the source. You don't have to shoot the messenger.
if I link to www.crazywankers.com will that count as a fact?
The whole idea is silly beyond words. Just because you have link from some site doesn't make it meaningful. You've link to rank speculation --"details are fuzzy"-- from an anonymous source without considering just where 19 MM bbls would actually sit. Can you/he even identify where one could could store this much oil? That's 10-15 VLCCs. It's not like you can hide them behind a bush. And it's not like there are 15 spare VLCCs you can take out of service to act as floating tankage. The day of old mangy rustbuckets available to do that sort of thing is over with the new pollution rules.
There's only 60 cts of contango to get you from now to Sept delivery. That won't even cover your TVOM so you'd have to eat all the demurrage on the ship or pay through the nose for tankage/double handling.
And to top that, you'd be stocking for a shoulder season when demand goes down. If you don't have a hurricane to bail you out by knocking out USG production, you could get a collapse like last summer. Whoo hoo. Lets store ice cream in summer for January too.
There is a bit of storage in places like St. Eustatius or the Bahamas but double handling is painfullly expensive. The Saudis used to do it back in the glut days but they don't have real world economics as the stuff comes out of the ground for free practically.
What I object too (perhaps too harshly, if so apols) is treating rank speculation as fact just because it fits your preconceived notions. A 6 MMB swing is fairly big, but not unheard of. It's only 10 hrs of US crude runs...You may well see a correction in next week's figures. Look at the rolling averages and don't try to see too much info in very sloppy figures.
Is Dow Jones in the same category as crazywankers?:
5/30/07 Dow Jones 20:22:06
Oil traders have been on a buying frenzy lately, with some even contracting with tanker companies to store crude offshore. One tanker broker said that three very large crude carriers, each capable of storing over 1 million barrels of oil, had been booked in the last week to hold crude off the U.S. Gulf Coast.
The premium enjoyed by outer-month crude futures to more near-term contracts, known as contango, has been driving much of the buying and storage, as traders expect the price of oil to rise over the summer.
The contango has only recently become wide enough to justify the storage of crude offshore, a crude trader said, noting that the contango narrowed on Wednesday.
see figures below. having dealt with the oil "press" I'd say no hopers might be more accurate than crazywankers.
Either I'm missing something not obvious or this is nuts.
Contango plays using floating storrage is not unusual. Nobody's hiding anything, the oil sits there until the carry play unwinds. It doesnt matter what the daily demurrage rate is, if the economics work they work. As for a ship earning more steaming than on demurrage not true. Although demurrage rates are negotiated each voyage they do not vary that much compared to voyage spot charter rates, so it entirely possible the demurrage rate is higher than the daily hire rate...and when a ship is chartered and the contango is there a short term floating storage option will be negotiated with the ship when it is chartered.
To think the trade/oil companies are using floating storage to manipulate stocks is nonsense.
I don't think anyone said it was to manipulate stocks just that it looked like a lot of oil that may have been held offshore was offloaded last week. The reason given was threat of hurricanes not stock manipulation. The only reason I brought it up was people where pointing it out as important.
If anything its just one more reason why US crude inventories are a really really useless number in a contango market.
Next of course if we actually did run low on commercial stocks we can do SPR draws until they are rebalanced ( at a price).
The problem is both KSA and the traders are using our inventory numbers as some sort of important indicator of how the market is supplied if they are low yes I can see that but if inventories are not low in the US I feel like they indicate nothing.
This seems true if you look at the widening spread between WTI and Brent even as US oil inventories remained high. Thus a well supplied US means nothing to the world market while a under supplied US is important since it means we could surge our imports. With the current situation the US imports are basically constant regardless of price.
What is important is gasoline imports and refinery throughput.
agree. floating storage is a typical technique. I guess myp point is you cannot do it in secret and then suddenly jam the bbls on shore in time to move a weekly DOE stats report.
But again people (Including Dow Jones) should put a bit of pencil to paper before repeating iffy claims.
Right we have a very mild contango. From Aug (Q) to Dec (Z) we have about $2 of contango to cover the 4+ months on NYMEX. so call it 50 cts/bbl/month.
This is wet oil so you have to pay for it. No margining here. At 6% interest that works out to 35 cts/month.
VLCC's are making about $40-50K/day (see
http://www.stockhouse.ca/mediascan/news.asp?newsid=7979351)
so for 30 days that's $1.4 million on 1.5 million bbls or almost another $1/bbl cost to store.
Add on vaporization losses (crude, like gasoline weathers in the heat of the caribs) Allow 0.1%/month or 7 cts/bbl/month
Just with these items I get about $1.4/month with only 40-50 cts of contango....small wonder "details are sketchy".
If you are just betting on rapid appreciation, you can bet for free on the futures exchange by just putting up a little margin.
I would not be surprised if they figured price would go up faster and are willing to take a larger short term loss gaming on a long term win. Now why take delivery at all is strange to me since you can do the same with futures contracts. Next floating storage is decommissioned tankers so your rates are high.
http://en.wikipedia.org/wiki/Floating_Production_Storage_and_Offloading
So the first mistake is that they are using functional tankers