Remember this child, the distillates giveth and the distillates taketh away: Luke Chapter 6 or maybe it was Old Testament. Well whatever or wherever it was after watching the market trade the last few weeks the truth of that humble little sage piece of advice might serve one well as they try to navigate the choppy day trade waters of the volatile energy complex. The dominate driver of the complex's direction has been and continues to be the heating oil. That's right heating oil in the spring. What I have said is a diesel dilemma has evolved into a diesel dichotomy. Tight global inventories of distillate and US supplies that are below normal have wreaked havoc and seasonal confusion across the entire energy space. Tuesday the complex was led higher by a report by the International Energy Agency that reported that the supplies of distillates in developing countries fell 6.7 percent from last year in developing countries and are 2.6 % belo w the five year average. Yesterday it was led lower by the Department of Energy’s Energy Information Agency supply report. Tight global supplies of distillates have raised fears that the trend by US refiners to continue to maximize distillate production at the expense of other fuels might continue. US refiners have been focusing on rebuilding tight supply as diesel prices have soared.
Obviously this is an ongoing concern but yesterday’s Energy Information Agency report may be putting us back on the road to a more normal seasonal perspective. The EIA reported a larger than expected build in distillate supply may signal that the rush to restock depleted global supply has just about run its course. The EIA reported that Distillate fuel production increased last week, averaging about 4.4 million barrels per day and inventories increased by 1.4 million barrels. Yet even with the increase supplies are still in the lower half of the average range for this time of year. Yet the larger than expected increase in supply seemed to suggest that maybe we are getting close to rebuilding supply and it seemed to take some of the seasonal pressure off.
What may also be taking pressure off the market are the signs of weak demand. The EIA reported that U.S. crude oil refinery inputs averaged only about 15.1 million barrels per day. That was up 405,000 barrels per day from the previous week's average but still rather disappointing if you are looking for signs of robust demand. Refineries are still only operating at 86.6 percent of their operable capacity last week.
But where the drop in demand is most disturbing is in the gasoline sector as rising prices and a rough economy or putting the hit on consumers, According to the EIA the four week gasoline demand number is catching up with the MasterCard Spending Pulse number and has actually gone negative on the year. The EIA says that over the last four weeks, motor gasoline demand has averaged nearly 9.3 million barrels per day, down by 0.2 percent from the same period last year. That’s right down from last year. When was the last time we saw demand drop ahead of the summer driving season?
Gasoline production on the other hand moved higher compared to the previous week averaging 8.9 million barrels per day. At the same time total motor gasoline inventories decreased by 1.7 million barrels last week, and are in the middle of the average range for this time of year.
More signs of weak demand came from the American Petroleum Institute. The API said that US fuel consumption fell 2.4% in the first for months of 2008 as compared to the same period a year ago. Mark Shenk of Bloomberg news quotes Ron Planting who helped prepare the report as saying “Consumers are reacting to higher prices by reducing demand for gasoline and other fuels. The airlines are using fuels more efficiently because of higher costs. Demand for jet fuel is down in spite of increased passenger miles.” That’s assuming the airline is still in business. The EIA said that jet fuel demand is 5.3% from a year ago.
Still as high as prices are there is plenty of crude available, especially of the heavy variety. OPEC is loaded with crude they can’t sell and is talking about cutting production. Go figure. Call for your day trade levels!! I am at 800-935-6487 or email me at pflynn@alaron.com. Long term natural gas calls that we have mentioned are also doing well call for option updates. Also check me out on the Fox Business Network! If you don’t get it you are so out of it! Call your cable operator today.
Buy June crude at 12100 stop 11950
Buy June Heating oil at 345 stop 340
Sold June RBOB apprx 32000 stop 32300
Buy June natural gas at 1100 stop1070
