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EIA Weekly Petroleum Status Report Commentary

• Crude oil stocks fell by 5.1 million barrels, the 3rd consecutive 2+ million barrel draw. Almost as important, stocks at Cushing, OK, increased by 0.3 million barrels to 36.1 million, leaving Cushing stocks less than 2 million barrels shy of the all-time record set May 14th
• Refinery utilization rates increased by 0.7% to 90.5%, crossing the 90% maximum that has held since early 2008
• Bloated distillate stocks: inventories ↑2.9 million barrels to 162.6 million barrels
• Motor gasoline stocks ↑1.6 million barrels after a 333,000 bpd decrease in imports was offset by increased domestic production (↑141,000 bpd) and softer demand (product supplied ↓369,000 bpd)

Consumer Hedge Tear Sheet

EIA Weekly Petroleum Status Report Commentary

• Bearish crude: Despite an eye-opening 4.96 million barrel decrease in crude oil inventories, stocks at the Cushing, OK oil trading hub fell by only 200,000 barrels. Until crude oil stocks significantly reduce further, the surplus inventory will easily absorb such draws
• Refineries increased crude oil inputs by 135,000 bpd, pushing utilization rates up 1.4% to 89.8%
• Gasoline stocks ↑1.32 million barrels while demand was flat due to higher-than-usual imports (↑223,000 bpd to 1.254 million bpd)
• Natural gas stocks rose by 78 BCF last week, 6 BCF greater than expected. Oct10/Jan11 is $0.045 wider at -$0.797 as the risk of insufficient year-end storage levels slightly diminishes further, all else being equal

Chris Thorpe's letter to the editor: Wall Street Journal

Below is a letter that Chris Thorpe submitted to the editor of the Wall Street Journal on Tuesday. The original op-ed is available at: Click Here

Sir,

The Dodd-Frank bill should do Main Street a favor. The proposal to move derivatives to the exchange will help avoid Enron-like disasters in the commodity and derivative transactions in the United States as well as its trading counter parties. For those main street customers holding derivatives with BP, I rest my case. For consumer hedgers that fear collateral capital risk, the Dodd-Frank bill clearly defines a carve-out for consumer hedgers.

Chris Thorpe, CFA
Managing Member, HCEnergy, LLC
New York, NY

Consumer Hedge Tear Sheet

EIA Weekly Petroleum Status Report Commentary

• Bearish crude: Crude oil stocks fell by 2.0 million barrels last week, attributed to a 631,000 bpd decrease in crude oil imports. Refineries decreased consumption of crude oil by 98,000 bpd
• Distillate stocks ↑2.5 million barrels: this is the largest build since April 23 and is 1.7 million barrels above Reuters survey expectations
• Refinery utilization ↓1% to 88.4%, reversing most of last week's unexpected 1.5% increase
• Crude oil at the closely-watched Cushing, OK storage nexus ↓0.8 million barrels to 36.0 million barrels, the second consecutive draw of about 800,000 barrels. Stocks are now 2 million barrels off of the all-time high set on May 14th

Consumer Hedge Tear Sheet

EIA Weekly Petroleum Status Report Commentary

• Crude oil stocks built 2.0 million barrels overall, though stocks at Cushing, OK drew 0.8 million, after Gulf Coast crude oil imports surged by 501,000 bpd week-on-week to 5.9 million bpd
• Refinery utilization rate ↑1.5% to 89.4% after refineries increased gross inputs by 253,000 bpd
• The contango in WTI is slightly narrower on the draw in Cushing: Aug10/Dec10 is $0.02 tighter at -$0.79
• Neutral motor gasoline: Total mogas inventories ↓0.7 million barrels, in-line with the ↓0.1 million barrels expected
• Somewhat bullish distillate: stocks ↑0.3 million barrels, vs. ↑1.3 million barrels expected

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Bunkerspot June/July 2010 article by HCEnergy's Chris Thorpe

EIA Weekly Petroleum Status Report Commentary

• The 0.98% fall in the US Dollar Index and rallying equity markets are the principal drivers of the market today; the EIA release contained few surprises
• Crude oil stocks ↓1.8 million barrels, vs. ↓0.9 million expected, after refineries increased utilization by 1.6% to 89.1%
• Cushing, OK crude oil inventories ↓0.5 million barrels, sustaining today's $0.15 narrowing of the July/August contango in WTI
• A 128,000 bpd decrease in Distillate product demand helped push inventories ↑1.8 million barrels, vs. ↑0.4 million expected

Consumer Hedge Tear Sheet

EIA Weekly Petroleum Status Report Commentary

• Gasoline stocks fell by 2.6 million barrels, much more than the -0.5 million barrels expected by analysts. An increase in production (149,000 bpd) offset a decrease in imports (148,000 bpd), suggesting that gasoline demand was considerably higher than expected.
• Product cracks are continuing yesterday's rally, supported by the fourth consecutive reduction in refinery utilization: ↓0.3% to 87.5%
• Crude oil imports ↓473,000 bpd, leading to a larger-than-expected 1.9 million barrel draw in stocks
• Crude oil stocks at Cushing, OK reversed last week's 300,000 barrel loss, returning levels to the all-time high of 37.9 million barrels

EIA Weekly Petroleum Status Report Commentary

• Refineries reduced crude oil inputs by a modest 107,000 bpd after July HO and RBOB margins fell $3+ during the last week; Utilization is 0.1% lower at 87.8%
• Crude oil stocks ↑2.4 million barrels, 2.2 million barrels over expectations, but virtually all of the increase was in the somewhat independent US West Coast market
• Gasoline stocks ↓0.2 million barrels, as expected, after a 266,000 bpd increase in imports substituted a 220,000 bpd fall in domestic production

Consumer Hedge Tear Sheet

EIA Weekly Petroleum Status Report Commentary

• A draw in distillate stocks of 1.0 million barrels was today's only surprise; Analysts expected a 1.3 million barrel increase
• Gasoline stocks ↓0.3 million barrels, vs. ↓0.6 million barrels expected, while crude stocks ↑0.2 million barrels, vs. ↑0.7 million expected
• Crude oil stocks at Cushing, OK surged further to 37.9 million barrels, an all-time record, reinforcing the view that landlocked and over-supplied Oklahoma crude should trade below Brent futures for the next few months
• Refineries decreased gross inputs by 83,000 bpd, resulting in a 0.5% decrease in refinery utilization to 87.9%
• Product cracks have steadily ebbed lower today: Jun0 RBOB is ↓$0.81 to $15.59 while Jun0 HO is ↓$0.41 to $12.56

Consumer Hedge Tear Sheet

EIA Weekly Petroleum Status Report Commentary

• Gasoline stocks fell by 2.8 million barrels, vs. expectations of a 0.7 million barrel build, after imports fell by 293,000 bpd
• June 2010 RBOB crack is ↑$1.21 to $17.04, widening the June/July crack spread to over $4.00 as summer driving season begins
• Stocks at Cushing, Oklahoma surged to a record 37 million barrels, depressing WTI relative to Brent further: June 2010 Brent is now $5.00 over WTI
• Refinery utilization rates decreased 1.2% to 88.4%: crude oil consumption by refineries ↓110,000 bpd to 15.03 million bpd
• Ever-increasing domestic crude oil stocks are deepening the crude oil contango: Jun/Sep is $0.78 wider at $7.68

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Bunkerworld April/May 2010 article by Chris Thorpe

Bunkerworld.com: Click here
Jonathan Kornafel's blog on Bunkerworld.com: Click here

Consumer Hedge Tear Sheet

CFTC Chairman Gary Gensler in the Wall Street Journal: Clearinghouses Are The Answer

Though Congress has taken great strides toward a comprehensive clearing requirement, various groups in the financial industry are appealing for one exemption after another. Firms that transact with derivatives dealers are concerned that clearing would raise their costs and are lobbying to be exempt from such a requirement. Additionally, as a result of the 2008 bailout, many believe that if their dealer fails the government will bail them out again, and thus there is no need to lower risk. The fundamental debate over exemptions boils down to deciding who should stand behind a derivative if one of the parties fails: a well-regulated clearinghouse or taxpayers.

Click here for WSJ link

Asia Hedging Strategies & Pricing

Consumer Hedge Tear Sheet

Asia Hedging Strategies & Pricing

Washington Post editorial: How to prevent America's next financial crisis

US Treasury Secretary Timothy Geithner wrote an editorial for today's Washington Post titled "How to prevent America's next financial crisis". The full text is available for free at the Post's website: Click here

Below is Secretary Geithner's opinion regarding exchange based trading vs. ISDA/OTC markets:

Transparency will lower costs for users of derivatives, such as industrial or agriculture companies, allowing them to more effectively manage their risk. It will enable regulators to more effectively monitor risks of all significant derivatives players and financial institutions, and prevent fraud, manipulation and abuse. And by bringing standardized derivatives into central clearing houses and trading facilities, the Senate bill would reduce the risk that the derivatives market will again threaten the entire financial system.

US Energy Information Agency: Weekly Total Gasoline Stocks

Gasoline stocks have consistently marched downward during the recent months, though a substantial glut in inventories remains when compared to prior years.

Figures for April 9th will be released this Wednesday at 10:30 AM EDT.

Source: US Energy Information Agency (http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WGTSTUS1&f=W)

Consumer Hedge Tear Sheet

Energy Market Indications & Implied Vols

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Consumer Hedge Tear Sheet

Update: Financial Regulatory Reform

This past Monday Senator Christopher Dodd, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, presented a 1,336 page draft bill on financial regulatory reform. The text includes 226 pages on OTC market reform which will be debated by his Committee next week. Additional proposals are expected soon from the Senate Committee on Agriculture, in addition to H.R. 4173, the bill passed by the House of Representatives on December 11, 2009.

'Commercial end-user' exemptions from mandatory clearing are an important point of debate among legislators, with certain market participants claiming that mandatory clearing increases transaction costs. On that note, two quotes from the bill are particularly relevant:

"Clearing more derivatives through well-regulated central counterparties will benefit the public by reducing costs and risks to American taxpayers, the financial system, and market participants."

"Trading more derivatives on regulated exchanges should be encouraged because it will result in more price transparency, efficiency in execution, and liquidity."

Impact on hedging: Following this rationale, Senator Dodd's bill contains a very narrow exemption to clearing requirements for commercial end-users. If Senator Dodd's proposal becomes law, all swaps and options that can be cleared must be cleared, unless one of the parties to a trade is too small to meet the eligibility requirements of an exchange. Markets would be allowed 180 days to comply with the legislation once it becomes law.

We will continue to monitor legislative developments as Congress begins the unusually active pre-election period. If you have any questions, please write or call.

EIA Weekly Petroleum Status Report

• A 1.0 million bbl increase in crude oil stocks and a 1.5 million bbl decrease in distillate stocks were in line with market expectations
• Gasoline inventories fell by 1.7 million bbl, almost 1 million more than expected, pushing the RBOB crack up $0.30-$0.40 in the front months
• Crude oil stocks at the Cushing, OK storage nexus fell by 700,000 bbl, though refinery utilization remains almost unchanged at 80.6%
• Both Exxon's Torrance, CA refinery and Chevron's El Segundo, CA refinery flared gas yesterday, suggesting mechanical issues
• OPEC ministers decided today to keep production unchanged, though Secretary-General al-Badri sought to apply moderate pressure to comply

 

New York Times: Gary Gensler's Conversion to Financial Reformer

The New York Times ran a story yesterday morning on CFTC Chairman Gary Gensler's efforts to reform US commodity markets. The full story is available by clicking here.

The article summarizes regulatory reform efforts by stating that:

The proposals include forcing the big banks that sell derivatives to conduct their trades in the open on public exchanges and clear them through central clearinghouses, so that any investor can see the prices that dealers charge their customers. Today, those transactions are bilateral and private.

The banks and their customers might have to post collateral or guarantees to prevent the kinds of panics seen during the financial crisis, in which some investors worried that trading partners might have trouble keeping their side of the contract.

In this way, the clearinghouses would work as circuit breakers in the great web of derivatives trading encircling the globe. Shifting the products, and the risk of default, off the books of the banks and onto these middlemen would ensure that no single bank was too interconnected to fail, the rationale goes.

The banks, for their part, sense a threat to the billions of dollars in profits they earn each year from trading in these complex derivatives.

EIA Weekly Petroleum Status Report

• Total motor gasoline stocks ↓2.9 million barrels last week, vs. ↑0.2 million expected, with the draw focused on the Midwest and Gulf Coast
• Distillate demand was also bullish: stocks ↓2.2 million barrels vs. ↓0.9 million barrels expectedProduct cracks have traded within a $0.40 range this morning and are now stronger: Apr10 RBOB is ↑$0.43 while HO is ↑$0.37
• Yesterday's API report showing a 6.5 million barrel rise in crude oil inventories failed to materialize, EIA showed crude stocks ↑1.4 million bbl
• Refineries decreased use of crude oil by 149,000 bpd last week, reducing percent utilization by 1.2% to 80.7%

EIA Weekly Petroleum Status Report: Talking Points

• Crude oil stocks ↑4.1 million barrels, 2.7 million more than analysts predicted, but WTI bounced back after trading lower on the news
• Heat cracks reversed early gains after the stocks drew by 900,000 barrels, in line with expectations: Apr10 is now ↓$0.03 to $6.64
• Gasoline stocks built by 700,000 barrels, vs. 600,000 build expected, though the Apr10 crack reacted by ↑$0.38 to $12.96
• Oil stocks at Cushing, OK rose by 100,000 barrels, the first build since January 1
• Crude oil inputs by refineries fell by 33,000 bpd last week as refineries suppress utilization in response to weak Distillate cracks

Consumer Hedge Tear Sheet: March 1st

Declining Implied Volatility in WTI Crude Oil

EIA Weekly Petroleum Status Report: Talking Points

• Crude oil imports ↑536,000 bpd last week, driving a larger-than-expected 3.0 million barrel increase in crude oil stocks
• Refineries are slowly ramping up: Utilization ↑1.4% as Cushing, OK crude oil stocks ↓700,000 barrels, the 7th consecutive weekly decrease
• Distillate fuel demand was soft: Inventories ↓600,000 barrels vs. ↓1,600,000 barrels expected
• Moderately bullish Gasoline draw-down: Stocks fell by 900,000 vs. 400,000 barrel build expected
• Cracks reacted differently: Heat crack sold off $0.45 in Apr0 to trade $6.48 while Apr0 RBOB crack rose the same amount to $12.34

EIA Weekly Petroleum Status Report: Talking Points

• Crude oil stocks ↑3.1 million barrels nationally, including a 4.7 million barrel increase in the Gulf Coast region after imports ↑206,000 bpd
• Distillate fuel oil inventories ↓2.9 million barrels on the cold weather, though stocks remain 12.5 million barrels above levels one year ago
• Motor gasoline production ↓379,000 bpd and imports ↓459,000 bpd as suppliers react to tepid shoulder season demand
• Refinery utilization rose by 0.7% to 79.8%, implying that at least 3.6 million bpd of US capacity remains idle due to weak product cracks

Consumer Hedge Tear Sheet: February 18th

Crude Oil Implied Volatility Spikes

The implied volatility of WTI options spiked 4.25% during today's trading session, rising to 36.5% annualized. Worse-than-expected US unemployment figures and increasing doubts regarding the Greek, Portuguese and Spanish fiscal deficits led March 2010 WTI futures down over $4.00 earlier today.

Besides today the most recent >4% move in WTI implied volatility occured on July 6, 2009.

US distillate inventories are reducing as expected during the winter - though levels remain far above prior years.

Source: US Energy Information Agency, http://tonto.eia.doe.gov/dnav/pet/hist/wdistus1w.htm

Consumer Hedge Tear Sheet: 27 Jan 2010

Consumer Hedge Tear Sheet: 19 Jan 2010