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By Robert Rapier on Apr 24, 2007 with no responses

This Week in Petroleum 4-25-07

2nd Update:

The gasoline supply situation in the U.S. is just about unprecedented, and for April it is unprecedented. If I go back to 1991 (as far back, it appears, as the EIA maintains a statistic on “days of supply”) then this week’s inventory is the 7th lowest out of 842 weeks. The lowest 6 all happened at the end of summer driving season (late August and early September). In other words, 99.2% of the time we have been in a better inventory situation than we are in right now. More importantly – again going back to 1991 – we have never had inventories this low in the month of April; just when we need to be building supplies for summer.

Last week I went out on a limb and said this week or next week gasoline inventories would turn up. My limb is starting to crack. Something has to give soon. We could be headed for record high prices to reign in demand a bit. Just hope for a mild hurricane season this year.

Update:

Another surprise this week on gasoline inventories. That is a decline for 11 weeks in a row, and right now we should building inventories for summer driving season. I expect the price rise to continue:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 2.1 million barrels compared to the previous week. At 334.5 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories fell by 2.8 million barrels last week, and are well below the lower end of the average range. Distillate fuel inventories remained the same, and are just below the upper end of the average range for this time of year.

This puts us into pretty uncharted waters. I will update just how uncharted in a bit. For now, here’s CNN’s take:

EIA characterized gasoline stocks, which have fallen 13 percent since early February, as being “well below the lower end of the average range.”

The gasoline situation doesn’t look likely to improve soon.

The report said refineries, operating at below normal capacity over the last several weeks due to fires and other problems, ran at 87.8 percent capacity last week, down from 90.4 percent the week prior and lower than expected.

And gasoline demand remains strong. EIA said demand over the last four weeks rose by 2.3 percent. The average rate of growth is 1.5 percent.

“It’s a one-two punch,” said John Kilduff, an energy analyst at Man Financial in New York. “It’s very troubling on the gasoline side. We just can’t keep up, given the strong demand.”

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As I wrote last week:

On a “days of supply on hand” basis, if I go back to 1991 – which is 841 data points, this week’s days of supply on hand is the 12th lowest during that time. In other words, in the past 16 years, 98.5% of the time we have been in a better gasoline inventory situation then we are in now. I would also point out that in April, over that same time frame this is the lowest day’s supply on hand that we have had. The 2nd lowest? You guessed it. The week before. So, this is not a typical situation. (But I will go out on a limb and say that within 2 weeks the gasoline inventory trend will reverse direction).

If you look back historically, this is usually about the time in April when refineries are coming back online, and the winter vapor pressure turnover is complete. So, gasoline inventories usually start to build near the end of April. But, as I pointed out last week, we are in an unprecedented inventory situation for this time of year, and demand remains very high.

Early predictions are in for tomorrow’s report:

Oil prices drift in narrow range

Traders were also anticipating the midweek petroleum supply report from the United States, which is expected to show that crude oil inventories fell by 1.2 million barrels on average, according to a Dow Jones Newswires survey of analysts’ estimates.

Ritterbusch thinks markets will be more closely watching gasoline stockpiles than crude inventories.

“The highs in gasoline are tending to prop up crude oil,” Ritterbusch said. “Supplies are still low, historically.”

Gasoline stockpiles will likely increase by about 200,000 barrels and distillate stockpiles, which include heating oil and diesel fuel, are seen growing by 400,000 barrels, the survey showed.

That sounds about right to me. I think gas inventories go up this week or next week. If we have another surprising multi-million barrel draw, gasoline prices are really going to take off because we will be entering unfamiliar waters. I will update this after tomorrow’s report is released.