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US refiners see slower operations as demand falls

08.05.2014  | 

West Texas Intermediate crude fell for the sixth time in seven days and Brent dropped to a four-month low on speculation that refineries will slow operations, thus easing demand.



West Texas Intermediate crude fell for the sixth time in seven days and Brent dropped to a four-month low on speculation that refineries will slow operations, easing demand.

Refineries probably operated at 92.8% of capacity on Aug. 1, down 0.7 percentage point from the prior week, according to a Bloomberg survey before a government report Wednesday. US refiners usually schedule maintenance for September and October when gasoline demand declines. Brent also fell as Libya said that the Es Sider oil port, the country’s biggest, is in talks to resume exports.

Refinery activity has already peaked for the year and should continue to fall,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. “There are just four weeks remaining to the peak-demand summer driving season, so there’s not a lot to support prices.”

WTI for September delivery dropped $1.06, or 1.1%, to $97.23/bbl at 1:05 p.m. on the New York Mercantile Exchange. Futures touched $97.09 on Aug. 1, the lowest intraday level since Feb. 5. The volume of all futures traded was 5.8% below the 100-day average.

Brent for September settlement slipped 96 cents, or 0.9%, to $104.45/bbl on the London-based ICE Futures Europe exchange. The contract touched $104.07, the lowest level since April 2. Volumes were 24% higher than the 100-day average. The European benchmark crude traded at a $7.22 premium to WTI, versus $7.12 earlier in the week.

Coffeyville Refinery

The announcement July 31 that a Coffeyville, Kansas, refinery that gets oil from Cushing, Oklahoma may be offline for most of August sent WTI to a four-month low. The 115,000-bpd plant may remain idle for four weeks after a July 29 fire, CVR Refining CEO Jack Lipinski said.

Cushing supplies fell to 17.9 million in the week ended July 25, the least since October 2008, according to an Energy Information Administration report on July 30. Stockpiles have dropped from a peak of 41.8 million this year as new pipelines have sent oil to the Gulf Coast, home to about half of US refining capacity.

“We’re all anxious about tomorrow’s data,” said Bob Yawger, director of the futures division at Mizuho Securities in New York. “WTI has been supported by the fall in Cushing supplies this year. Coffeyville being offline may change the whole formula and we may see a supply gain.”

Crude Inventories

US crude inventories probably fell 1.5 million bbl to 365.9 million last week, according to the median of nine analyst responses in the Bloomberg survey before the EIA report. They also forecast that gasoline supplies fell and distillates gained.

Gasoline for September delivery dropped 1.69 cents, or 0.6%, to $2.708/gal on the Nymex. Futures touched $2.6983, the lowest level since Feb. 7. Pump prices slipped 1 cent to $3.49/gal nationwide on Monday, the lowest since March 11, according to AAA, the largest US motoring group.

Ultra-low-sulfur diesel for September delivery declined 2.88 cents, or 1%, to $2.8424/gal. The 52-week low is $2.8258, reached July 15.

US gasoline consumption peaks during the summer driving season from late May to early September.

“We’re seeing considerable seasonal weakness in gasoline,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The price action reflects the step down to a lower demand level in mid-September.”

API Data

The American Petroleum Institute is scheduled to release separate supply data. The industry-funded group in Washington collects data on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA.

Elsewhere, Tripoli, Libya’s capital, has plunged into chaos amid more than two weeks of fighting over control of the international airport by rival militias.

Kurdistan, Ukraine

Kurdish fighters recaptured Sinjar and Rabia’ah after heavy fighting Monday, the Kurdistan Democratic Party said. At least 50 Islamic State militants were killed in the battle for Wana south of Mosul dam.

WTI climbed to a nine-month high in June after militants from a breakaway al-Qaeda group known as Islamic State captured the city of Mosul. Futures dropped when the rebel advance stalled, sparing the country’s south, home to more than three-quarters of its oil output.

“Prices climbed to a new high right after the Iraqi headlines in June but have been falling ever since,” Schork said. “Once it became clear that supply was continuing to flow, the urgency left the market. The bulls better make a stand or we will soon be testing $95.”

Ukraine expressed alarm about a new buildup of Russian forces on its border, intensifying a conflict the United Nations agency for refugees says has displaced hundreds of thousands. Futures surged when Russia annexed Crimea from Ukraine in March.

“There’s not been an outbreak of peace in Libya, Iraq or Ukraine,” Evans said. “We’ve seen a massive change in market sentiment and trade flows but no change in fundamentals. An intensification of violence in any of these places could easily send prices higher again.”

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Montana ChemE

Perhaps a slowdown for all those refiners in PADD 3 - for us fortunate PADD 4 refiners, there is definite sustainability in demand - especially for distillates.

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