Crude Oil Market Update

Sachem Rock has been keeping a close eye on the weekly crude oil data since our “Gusher of Hyperbole” blog post on October 17th.  We continue to hold the view that the significant decline in crude oil and associated product prices was driven by seasonal low demand and refinery maintenance, and these price levels will not be sustained in the long-term.

Compared to prior years, the refining of crude oil products in the US continues to be in a significant deficit, an indication of a heavier and longer maintenance season.   Last week gasoline production was down (-13.3%) or 258,000 barrels per day compared to the 2013 corresponding period, respectively.  This fact was reflected in the report of gasoline inventories for the week ended 10/31/2014 as gasoline inventories declined by 1.4 million barrels.   During that week, refined products distillate production (diesel and other fuel oils) was also down 6.7% or 469,000 barrels per day.  Jet fuel refining was close to flat.

As a “tell” that refining is increasing, it that the US crude oil inventory (excluding the Strategic Petroleum Reserve) was only up 500,000 barrels for the week ended 10/31, after a rise of 2.1 million barrels for the week ended 10/24.  In fact, the government reported US refining capacity utilization rose from 86.6 to 88.4 the week before indicating more refining capacity is coming on-line.  In an examination of weekly historical data, refining utilization increases from seasonal lows during the refinery maintenance season from the mid-80 percent range to low-90 percent range in early December.

Total crude oil inventory remains within normal range totaling approximately 380 million barrels as of 10/31.

Sachem Rock concludes that current prices are very likely the near term bottom for US crude oil.

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