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BIG Gasoline Drawdown

April 13th, 2011

Today’s Energy Department inventory report showed a much-larger-than-expected decline in domestic gasoline supplies.

Late Tuesday, the American Petroleum Institute estimated a drawdown of 4.6 million barrels, a more bullish scenario than the 900,000- to 1.3-million-barrel off-take seen by sell-side and independent analysts. Definitive government data showed gasoline inventories actually decreased by 7.0 million barrels, putting supplies near the lower limit of their average range.

Domestic crude oil inventories increased by 1.6 million barrels to 359.3 million, according to the Energy Department, a build in line with industry and Street expectations. The API estimated a 1.2-million-barrel increase while analysts eyed a crude buildup of 1.0 million to 1.6 million barrels.


Distillate fuel inventories are flush even after the Energy Department’s report of a 2.7-million-barrel drawdown. API estimates showed distillate stocks fell 3.7 million barrels, while analysts forecast no appreciable change in supplies.

Refineries operated at 81.4 percent of operable capacity, according to government figures, a surprise to both the industry and Oil Patch watchers. The API estimated utilization slumped 5.1 percentage points to 78.9 percent of capacity, while the Street thought refinery runs would actually rise 0.4 points to 84.8 percent.

Gasoline production increased to a daily average of nearly 9.0 million barrels, while distillate fuel output eased to 4.1 million barrels.

Demand for gasoline now averages nearly 9.0 million barrels per day, down 1.6 percent from this time last year. Daily distillate fuel consumption, however, is up 1.4 percent from year-ago levels, at 3.7 million barrels.

Trading Week

For the week ending Tuesday, margins improved on refining runs emphasizing middle distillates. Heating oil prices were firmer, losing just 0.2 percent, while gasoline slumped 1.2 percent. Prices for crude oil inputs fell 2.9 percent after concerns about demand destruction spooked traders.

The heating oil/gasoline spread jumped 3.19 cents a gallon.

Distillate-rich refinery runs grossed 23.1 percent vs. 22.7 percent last week. Margins for gasoline-heavy operations inched up 0.2 points to 22.8 percent.

Ethanol crush margins fell 18 cents after average corn input prices jumped 39.9 cents a bushel. Gasoline’s premium over the alcohol fuel fell by 1.2 cents a gallon.

Average daily NYMEX volume for WTI futures rose 12.6 percent to 576,936 contracts. Open interest climbed by 7,394 contracts to 1.567 million.

Brent crude’s premium over WTI widened from $12.07 a barrel to $13.47. WTI’s contango also widened. A three-month roll now costs $1.55 a barrel vs. $1.34 last week.

ETFDN Notes Some Related ETFs: United States 12 Month Oil (NYSE:USL),  United States Oil Fund (NYSE:USO)

Technical Picture

The WTI market staged a technical reversal this week. Spot prices are now testing support at $105.07, their 20-day moving average. Closes under $103.83, a critical retracement level of the 2008-09 decline, would bolster selling interest.

Tuesday’s market action engendered a bearish MACD crossover. Volatility’s picked up, while momentum’s waned, indicating a weakening market. Relative strength is also heading south.

Resistance is at Monday’s $113.46 high, while deeper support should be expected at the 50-day moving average of $99.18.

Near-Term WTI Prices

Near-Term WTI Prices

Written by Brad Zigler From Hard Assets Investor

HardAssetsInvestor.com (HAI) is a research-oriented Web site devoted to sharing ideas about hard assets investing. The site has been developed as an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures and gold (the three major components of the hard assets marketplace). The site will focus on hard assets investing without endorsing or recommending any particular investment product.

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