Traders On The Storm
Traders on the storm, traders on the storm. They seemed to be forborne. The money that was thrown, like a dog without a bone. Oil taken out on loan. Traders on the storm.
After yesterday’s oil market action, it was clear that the last of the Tropical Storm Gordon speculative buyers finally got washed out of their long positions. As happens so often with oil storm markets, they buy up the rumor and run the market too high and too fast only to have to cover those longs when they find out that the damage was not as bad as they feared. Many traders of the storm were holding out hope that yesterday’s Energy Information Administration (EIA) supply report would bail them out, and when it failed to be wildly bullish they had to run for the exits. Make no mistake about it, yesterday’s EIA report was not that bearish and the extended run on the downside made it clear that the traders on the storm were capitulating out of the market. In fact, one might argue that some parts of the EIA report were rather bullish.
The headline Crude number, for example, showed a much larger than expected draw of 4.3 million barrels out of storage. While we did see a 549,000-barrel increase in Cushing Oklahoma, that increase was smaller than private forecasters reported. That really did not justify a $1.50 drop in the prices of oil.
Some said the larger than expected increase in product supply was the reason. The EIA reported that gasoline inventories increased by 1.8 million barrels last week and are about 7% above the five- year average for this time of year. Yet, if you look at gasoline demand it is just a little bit off last week’s all-time high. Distillate fuel inventories increased by 3.1 million barrels but are about 6% below the five-year average for this time of year.
Besides, if you look at refinery runs it’s bullish and amazing. The EIA reported that U.S. crude oil refinery inputs averaged a whopping 17.6 million barrels per day during the week, which was 81,000 barrels per day more than the previous week’s average and a record for this time of year. Refineries operated at an astounding 96.6% of their operable capacity last week. Refiners are trying to build product ahead of maintenance to keep up with explosive demand.
The EIA had implied demand with total products supplied over the last four-week period averaging 21.4 million barrels per day, up by 3.0% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.7 million barrels per day, up by 1.1% from the same period last year. Distillate fuel product supplied averaged 4.2 million barrels per day over the past four weeks, up by 2.9% from the same period last year. Jet fuel product supplied was up 5.1% compared with the same four-week period last year.
So for oil, when you get these storms, after an over extending run to the upside, you must overextend the move to the downside just to even things out. The problem is that we may see more storms. The Atlantic is very active and while no storms pose a threat to the Gulf of Mexico at this point that could change over the weekend.
One market that was unmoved by the storms was natural gas. Dow Jones reported that the U.S. Energy Information Administration reported that domestic supplies of natural gas rose by 63 billion cubic feet for the week ended August 31. Analysts polled by S&P Global Platts had forecasted a climb of 60 billion cubic feet, while the average over the last five years for the same week was a rise of 65 billion. Total stocks now stand at 2.568 trillion cubic feet, down 643 billion cubic feet from a year ago, and 590 billion below the five-year average, the government said. October natural gas fell 2 cents, or 0.7%, at $2.775 per million British thermal units. It was trading at $2.784 before the supply data. Natural gas supplies should continue to build in the coming weeks as record production will overwhelm supply.