Following the weekly report on crude inventories from the Energy Information Administration, prices for New York’s July contract on light sweet crude took off past $55 after opening at $53.30.
Then after some analysis, traders started dumping oil and it plummeted down to $52.46Gasoline prices followed suit, opening at $1.50 a gallon, then shooting up to $1.55 and back down to $1.49. Heating oil was perhaps the most remarkable though opening at $1.58, zooming to $1.62, then zooming back down to $1.55.
The big changes can only be attributed to the reassuring news in the report listing distillate fuels at higher inventories than anticipated. One of the driving forces behind higher prices and stockpiling of oil has been the fear of inability to meet demand in the 4th quarter, a time when diesel and heating oil consumption hit their stride.
Distillates remain another area of close scrutiny. Distillate inventories went slightly more than anticipated, hitting 1.3 million vs. 1.1 million barrels a day. This is good because heating oil consumption has been unseasonably high during a time of year when supplies are expected grow and distillate prices on heating oil and diesel are expected to drop, something unseen yet this year.
The reported a 3 million-barrel drop in U.S. crude inventories to 330.8 million barrels after analysts in Reuters anticipated a slight rise. Gasoline was expected to go up 900,000 and fell far short of that mark, actually going down 100,000 barrels. The report does say however that inventories are still far above the average for this time of year.
This shows that oil refineries are cranking buying more oil and consumers are driving away with it as quickly as they can get their hands on it. The report backed this up saying consumers are buying 2.4% more than June of last year at 9.4 million barrels a day.
Oil refineries continue to ramp up capacity going to 96.4% which means they move ever closer to full capacity. Since no new refineries have been built in over two decades, this stresses not only the need for more capacity but the also the possibility these aging facilities could have major problems. Their spring track record would indicate this as a number of refineries have had tremendous problems keeping their capacity up.
The prices also climbed despite OPEC saying they plan to kick up production by half a million barrels if trends continue. The OPEC chief Sheikh Ahmed Fahd al-Sabah will make this recommendation at OPEC’s monthly meeting next week. This will just take up their official ceiling though. Right now, OPEC is cranking well above the official ceiling and actual production isn’t expected to increase.
John Stith is a staff writer for murdok covering technology and business.
