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Refinery breakdowns boost US gasoline purchases

08.18.2014  | 

Refinery breakdowns from Kansas to Texas are giving gasoline a boost, spurring speculators to increase bullish bets for the first time in six weeks as the Labor Day holiday approaches.

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By MOMING ZHOU
Bloomberg

Refinery breakdowns from Kansas to Texas are giving gasoline a boost, spurring speculators to increase bullish bets for the first time in six weeks as the Labor Day holiday approaches.

Hedge funds raised net-long positions by 13% in the week ended Aug. 12, Commodity Futures Trading Commission data show. The wagers slumped 56% in the previous five weeks, while gasoline futures dropped 10% since the Memorial Day holiday on May 26, the traditional start of the driving season.

Bets on rising prices reached this year’s high in late April on speculation that peak summer demand would reduce supply. Inventories expanded to a four-month high in July, as refineries produced a record amount of fuel and consumption was stuck at the lowest seasonal level since 2012. The outages are unlikely to stem a decline in prices, according to AAA.

“The refinery outages spurred some buying,” said John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, “It’s certainly still a bearish market. The demand environment is not great, and there is plenty of gasoline coming into the market. We remain well-supplied.”

Gasoline futures gained 1.9 cents, or 0.7%, to $2.7345/gal on the New York Mercantile Exchange in the period covered by the CFTC report. Prices fell to $2.6666 on Aug. 14, the lowest since Feb. 5, and dropped 1% to $2.6714 at 8:33 a.m. in electronic trading.

Pump Prices

Regular gasoline at the pump, averaged nationwide, sank to $3.454/gal on Sunday, the lowest level since Feb. 28, according to Heathrow, Florida-based AAA, the largest US motoring group. The peak driving season typically runs through Labor Day, which falls on Sept. 1 this year.

“Refineries are making more than enough gasoline to meet domestic demand, which has helped push gas prices to the lowest level for this time of year since 2010,” said Michael Green, a Washington-based AAA spokesman. “It seems unlikely that an increase in road trips over Labor Day weekend would reverse this summer’s gas price decline based on current conditions.”

A fluid catalytic cracker at ExxonMobil’s 344,600-bpd refinery in Beaumont, Texas, was shut after a malfunction July 25. CVR Energy closed the 115,000-bpd Coffeyville refinery in Kansas after a July 29 fire.

Refinery Rates

US refineries operated at 91.6% of capacity in the week ended Aug. 8, down from 93.8% in July, according to the Energy Information Administration. Gasoline production was 9.52 million bpd, the most for this time of year since since EIA began weekly data in 1982.

Demand averaged 9.02 million bpd in the four weeks ended Aug. 8, the lowest seasonal level since 2012, according to the EIA, the Energy Department’s statistical arm. Inventories rose to 218.2 million bbl as of July 25, the most since March.

“Stocks are ample, output is rising and demand will see structural decline for years.” analysts at Bank of America including Francisco Blanch, the bank’s head of commodities research in New York, said in a report.

Global refining capacity rose to a record 94.9 million bpd by the end of 2013, according to BP’s Statistical Review of World Energy. US capacity reached a record 17.9 million this year, according to the EIA.

More Capacity

“Too many refiners and too little demand, and that’s the problem,” said Robert Campbell, the New York-based head of oil products research at Energy Aspects, a London-based research firm. “Refining capacity worldwide continues to grow rapidly relative to demand.”

Hedge funds and other money managers boosted net-long positions in gasoline by 3,752 futures and options to 32,916 in the week ended Aug. 12, the CFTC said Aug. 15 in its weekly Commitments of Traders report. That’s the biggest increase since June. Long positions grew by 2,233 to 60,972, while shorts slipped by 1,519 to 28,056.

In other markets, bearish wagers on ultra low sulfur diesel shrank by 30% to 13,103 contracts. The fuel dropped 0.19 cent to $2.845/gal in the report week.

Natural Gas

Net longs on US natural gas decreased 14% to 131,124 futures equivalents. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures US Henry Hub contract. Nymex natural gas rose 7.7 cents to $3.974/MMBtu during the report week.

Net-long positions in benchmark West Texas Intermediate fell by 7.4% to 218,814 futures and options, the lowest since June 2013. WTI dropped 1 cent to $97.37/bbl in the report week.

Crude jumped 1.9% on Aug. 15 after Ukraine said its forces attacked and partially destroyed a convoy entering the country from Russia. Prices retreated as much as 0.8% in Monday's electronic trading to $96.58.

“It’s a fundamentally bearish market, subject to all the geopolitical uncertainties that we have no control over,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “Refiners have been running at a pretty high rate, and demand has been weak. We are probably in for more continued weakness.”



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