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WTI/RBOB Algos Undecided After Gasoline Build, Production Dip

Courtesy of ZeroHedge. View original post here.

RBOB gasoline is at a 25-month high (and WTI has a $45 handle) as all attention is focused on the duration and impact of the storm (i.e. how long refineries will be closed?). Inventory and Production data this week will be of limited help to traders as it occurred before Harvey struck but API confirmed the crude draw, gasoline build trend overnight, and DOE data shows the same pattern – crude draw, gasoline (and distillates) build and both WTI and RBOB dipped on the print.

Before we get to the numbers, we note the following…

“The next couple of weeks, I don’t know if you should try to read very much into it just because it’s subject to such impact because of Harvey,” Kyle Cooper, director of research with IAF Advisors, told Bloomberg.

“It’s going to take a long time for the infrastructure to get back to order”

API

  • Crude -5.78mm (-1.75mm exp)
  • Cushing +582k (+200k exp)
  • Gasoline +476k (unch exp)
  • Distillates -486k

DOE

  • Crude -5.39mm (-1.75mm exp)
  • Cushing +689k (+200k exp)
  • Gasoline +35k (unch exp)
  • Distillates +748k

The previous week's data calmed fears of gasoline builds, but API overnight showed a decent build (and at Cushing). DOE however shows this week with notable crude draw and product builds once again…

No wonder gasoline inventories rose: Bloomberg notes that refineries have been eating up crude like it's going out of fashion. Inputs rose to a record last week.

Here's where nationwide gasoline inventories were before Harvey hit the Gulf Coast - significantly above average for the time of year but below their peak. That's going to change markedly in the coming weeks as the full impact of refinery outages plays out in physical markets.

As we noted earlier, around 4mm b/d in refining capacity is potentially offline due to Harvey and thus dominates the market's view for now… That amount of offline capacity could reduce U.S. fuel production to the lowest since Hurricane Ike shut several refineries after striking the Texas coast in 2008.

“These closures are already impacting markets with crude prices lower on a perceived drop in demand and gasoline prices spiking in response to lower supply,” Sandy Fielden, director of oil and products for Morningstar Commodities Research, said in an emailed note.

Even as plants recover, the restarts will be delayed by distribution issues and crude supply, compounded by port closures cutting off imports, Fielden said. The Port of Houston has no timeline for reopening, while Corpus Christi’s port is expected to resume normal operations by Sept. 4.

US Crude production in the Lower 48 dropped last week following a stabilization in rig counts (but rose 2k overall thanks to a pick up in Alaska)…

Algos got excited heading into the DOE print, RBOB prices slid and WTI limped higher; and then the data hit chopping WTI prices higher then lower and RBOB lower…

“At the moment we see a strong divergence between the price of oil products and crude oil,” says Carsten Fritsch, commodity analyst at Commerzbank. “Product prices continue to rise and its all related to the disruptions from Hurricane Harvey — it’s very distorted at the moment”

Bloomberg Intelligence energy analyst Vince Piazza sums up the week's data:

Hurricane Harvey will drive sentiment across the petroleum value chain in the near term, rendering the EIA's weekly crude and products report less relevant. Exports of oil and refined products from key ports such as Corpus Christi have provided a critical outlet for domestic supply, yet ports remain shuttered and flows will be curtailed. Gasoline inventories are expected to decline as storm preparations balanced a drop in demand. Inventory data are expected to show a withdrawal of 802,000 barrels in the week ended Aug. 25. Distillate inventories expected to decline after staying relatively flat.

Finally we note that Brent is trading at a $5.50 premium to WTI currently…


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