Crude can run, but it can't hide

March 19, 2015 11:36 AM

It’s been a rough week, but I can see the light at the end of the tunnel. The only only lingering confusion: should I be walking into the light, or away from it? So, the thing that everyone wants to talk about is overflowing oil supply. I get it. Nobody thought that the crude oil inventories were going to jump 9 million barrels yesterday because there was supposed to be at least some delay in the U.S. Gulf. I remember back in 2005 when Kat-Rita hit, the numbers were all over the place too. It was hard to get a good grip on the how and the why. This week, not only did we see U.S. crude inventories jump up 9.6 million bbls, but the U.S. Gulf Coast added another 3.3 million from last week. Not so clever for those thinking that fog, a few accidents and three days of delays was going to affect loadings. 

So, let’s get past my teeming millions. I know that this week has been hard, and I am fully expecting to get a good roast once The Biebs gets his. This is still Beastie mode and I’m going to fight for my right to party. So let’s move over to some shocking numbers that nobody but me wants to talk about: demand. That’s right, demand is flying off the charts and nobody is the wiser. We’re looking at gasoline demand that is 4.5% higher year over year and has topped 9M b/d (9.3) for the second time already in 2015. Just a side note folks: this is March. That means we have a few more weeks to clear snow off the ground, and demand should just tap the bears on the shoulder. I’ll go as far as to say I think that gasoline demand will hit record levels this year. 

Now I also want to clear something up for the uninformed. The price of gasoline does not translate into the price of Brent. Yes, that was the issue a few years ago, but the fact is that we’re actually exporting crude to the EU. That’s where we were relying on a lot of gasoline imports. So one, we aren't even close to looking for crude imports anymore. Year over year we’re down –1.2% and if we net out those imports, we’re down –6.8%. So trying to justify the idea that our gasoline prices are affected by crude imports is ridiculous. At this point gasoline imports that we bring in are probably being made by some crude we’ve exported. The real reason that gasoline prices are rising is that same old story that I keep trying to push. From the last week in January to right now we’re averaging refinery crude runs at 15.3 million b/d. That’s 900K b/d less than the 16.2 million b/d we averaged from March 2014 until now. I’ll admit that gasoline production has been high, but it’s just not enough. We’re a country that is on track for growth. We’re a country that has bought at least 16 million cars and trucks every month since April 2014. We’re a country that added 3 million jobs last year and will probably do the same this year. I don’t think the buses and trains are that full and the amount of clown cars on the road is suspect. These are real drivers and this is real demand.

Crude: Well here we are, once again picking up the downtrend. Overall though, the CL chart has been stick in a range of 4500 to 5500 for some time. We’re thinking that a test down here is no different than a test of the upper range. A bounce off the bottom though, and we’re going to see momentum build a bit more to the upside and test resistance above that 5500 level. We’ll start with resistance at 4352, 4470 and 4586. We’ll be careful with support here to 4155, 4040 and 5966. The front spread is ready to head into expiry with resistance at –235, -222 and –190. Support can get back to –256. Well it’s down with a frown...again and again.

Gasoline: We’re moving along to the RBJ5 contract as cash trade moves forward. We’re looking to resistance 17944, 18210, 18434. That will give us some room to look back down to support at 17766, 17538 and 17375. The front spread moves to J5/K5. Resistance at 66, 102 Support to 24, -02. The RBCL moves to J15 and gets to resistance at 3230, 3276. Support down to 3126, 3177.

Distillate: The move is ahead and we switch months and ahead to the HOJ15 contract. We’re looking at support to 17460, 17232 and 17055. The resistance looks above to 17626, 17823, 18030. The front spread is in J5/K5 with resistance at 222, 268 With the way it’s moving we may not see support tested, but looking to 182, 125. The HO crack in J15 sees resistance at 3040, 3078. Support back to 2980, 2944.
 

About the Author

Carl Larry is Director of Business Development Consultant for Oil and Gas at Frost & Sullivan. Follow him on Twitter (@oiloutlooks) or on his website. He can also be reached at carl.larry@frost.com