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WTI crude surges as US refiners process high volumes

07.17.2014  | 

West Texas Intermediate crude futures jumped overnight after US crude stockpiles tumbled as refineries increased processing rates to the highest level in almost nine years.



West Texas Intermediate oil advanced after US crude stockpiles tumbled as refineries increased processing rates to the highest level in almost nine years.

Crude supplies dropped 7.53 million bbl to 375 million last week, Energy Information Administration data showed. Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, fell by 650,000 bbl to 20.3 million, the least since November 2008. Refineries operated at 93.8% of capacity, the highest level since August 2005.

“It’s the increase in refinery activity that got us this 7.53 million barrel decline in crude stocks,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There was also a big drop at Cushing, which is also giving the market support.”

WTI for August delivery rose $1.24, or 1.3%, to close at $101.20/bbl on the New York Mercantile Exchange. It was the biggest gain since June 12. July 15's settlement of $99.96 was the lowest since May 6.

Brent for August settlement, which expired on July 16, slipped 17 cents to end the session at $105.85 on the London-based ICE Futures Europe exchange. It was the lowest close since April 7. The September contract gained 29 cents to settle at $107.17.

The European benchmark closed at a $4.65 premium to WTI, the narrowest since April 11.

Expected Decline

Crude stockpiles were projected to decrease 2.75 million bbl, according to the median of 10 analyst projections in a Bloomberg survey.

US crude stockpiles slipped to the lowest level since the week ended March 7, the report showed. Inventories rose to 399.4 million barrels in the week ended April 25, the most since the EIA began publishing weekly data in 1982.

Crude production rose 78,000 bpd to 8.592 million last week, the most since October 1986. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.

Refinery runs climbed to 16.6 million bpd, the most in weekly data going back to 1989.

“This report was mildly bullish because you can’t ignore a huge crude number,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Rather lackluster demand creates some clouds for the oil price bulls.”

Fuel Demand

Gasoline consumption averaged over the four weeks ended July 11 dropped 51,000 bpd to 8.99 million, down 0.7% from a year earlier, EIA data show. Total fuel demand rose 1% to 19.2 million barrels over the four weeks.

Supplies of distillate fuel, a category that includes heating oil and diesel, rose 2.53 million bbl to 124.3 million, the most since January, the EIA data showed. Gasoline inventories increased 171,000 bbl to 214.5 million.

Gasoline for August delivery fell 1.61 cents, or 0.6%, to $2.8825/gal on the Nymex. It was the lowest settlement since April 2.

US gasoline pump prices fell 0.7 cent to $3.598/gal nationwide on July 15, the lowest since April 7, according to AAA, the largest US motoring group.

Ultra low sulfur diesel for August delivery rose 0.23 cent to close at $2.8578/gal.

“The products are under some pressure because the demand numbers aren’t looking that good,” said Bob Yawger, director of the futures division at Mizuho Securities in New York. “If this continues there will be a lot of gasoline laying around in storage by the end of the summer.”

Technical Signal

WTI’s decline below $100/bbl on July 15 was excessive and further losses may be unsustainable, a chart indicator shows. The 14-day relative strength index closed below 30 for the first time since Nov. 5, a level that typically signals the market is oversold. July 16’s reading is about 37.7.

“The market was really beat down yesterday,” Yawger said. “The RSI was signaling that it was ready for a rebound.”

China’s GDP growth accelerated for the first time in three quarters after the government expedited spending and freed up more money for loans to counter a property slump, figures from the statistics bureau in Beijing show.

The Asian nation will account for 11% of global oil demand this year and the US 21%, according to the International Energy Agency in Paris.

“I would expect price to be higher given the large inventory drop and the Chinese growth data,” said Rob Haworth, a senior investment strategist in Seattle at US Bank Wealth Management, which oversees about $120 billion of assets. “Traders seem gun-shy. It could be because they expect to see Libyan supply come back.”

Libya is now pumping about 550,000 bpd of crude, according to the state-run National Oil Corp. The country produced 300,000 bpd in June, according to Bloomberg estimates.

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