Crude Oil inventory increased another 2,091,000 barrels this week, to 339,899,000 barrels. Inventory is up 2,417,000 from 13 weeks ago and is up 19,527,000 barrels from a year ago.
We are at the 88th Percentile in barrels in storage, and we are at the 97th Percentile based on the 24.15 days of usage in storage. Distillate inventory dropped by 1,170,000 barrels, to 165,698,000, the 98th Percentile.
We are up 142,000 barrels from 13 weeks ago and up 40,725,000 barrels from last year. We currently have 46.30 days of usage in storage, the 96th Percentile.
Gas inventory increased 3,996,000 barrels to 214,081,000 barrels, the 81st Percentile. We are up 6,928,000 from 13 weeks ago and up 15,139,000 barrels from a year ago.
Days of usage are at 23.94, the 75th Percentile. The Crude Oil inventory will match last year’s level, in 8 weeks. Prices then were $46.47, about $30 less than currently.
In 13 weeks we will be comparing a Heating Oil price of 119.67 cpg compared to a current price of 196.22 cpg, and inventory will be 24 mm barrels higher. In 4 weeks Gas inventory will be 6 mm barrels above last year.
Price was then at 84.40 cpg, a 108 cpg lower than now. Prices are about to look very high on a year over year basis. The market is now at a large risk of a price break that may be very large.
If the demand is not improving, production is not dropping and demand is not improving. With these facts a major price problem can easily occur. If the inventory levels happen to increase and they are, and if demand cannot increase, and it is not, price ends up looking way too high.
Distillate demand must increase by 5%-10% and still going into winter we still have not seen a sharp demand increase. Production must drop sharply and that is not happening. These things change or we end up looking at a huge inventory, too much production and too little demand. Price will not go up based on these facts.
Refinery inputs fell to the 3rd Percentile with Distillate production is at the 55th Percentile with the HO Crack Spread at the 47th Percentile. Gas production is at the 82nd Percentile with the Gas Crack Spread at the 21st Percentile.
The HO Crack Spread remains high considering production levels. The production levels are not decreasing and the Crack Spreads will suffer if this continues. Over production with poor demand will almost always lead to price weakness.
Current demand should force production levels down 10% from current levels, so far that has not happened. Current production levels dictate demand increases of 10% or more in the products. If the production versus the demand remains here, then the price, and the processing margins, will not hold these levels.
There is the potential for extreme price pressure and for a potential price collapse. Something must change. Refiners must cut production.
Crude Oil imports this week are at the 7th Percentile, Distillate is at the 6th Percentile, Gas at the 79th Percentile and Jet Fuel at the 13th Percentile. Demand is simply not better than very poor.Import levels need to hold at these levels until we clear inventory.
Refiners are running at 79.66% this week compared to 84.34% last year. Still Crude Oil inventory does not seem to fall. Run rates must stay here or lower and imports must stay here or lower. Inventory, with current demand, shows only one conclusion; if we get higher imports, and become a dumping ground for product, price weakness will follow.
If we do not see this supply/demand imbalance end in the next few months, we will more than likely face a major price problem at some point. With too much inventory and too much production imports will trigger a problem unless they stay very low. If the imports do not stay depressed we will see inventory build and at a time when demand cannot take it. If this does happen, and we have a price collapse, we want to hedge 2-3 years into the future.
Distillate supplied this week is at the 14th Percentile with Gas at the 41st Percentile. Demand for Distillate remains continually poor at best. A year ago we were at the 38th Percentile. Demand for Distillate must improve. We are now in December and if we see an inventory build we have major problems and a price disaster.
Gas demand fell this week to the 41st Percentile compared to year when it was at the 40th Percentile with price 78 cpg lower. Price has maintained these levels only because of the extreme dollar weakness. If the $ was not so weak, prices would be at least lower by 1/3. If the US $ rallies begins to rally from here we will see a dramatic price break.
Prices are running sharply above a year ago with the market fundamentals about as bad as they could be. In a number of weeks, on a year over year basis, these prices are going to look very rich on a comparative basis. They will stick up like a sore thumb compared to a year ago.
Do not think that this is going to last forever, it will not. Something always comes along to tip over the apple cart