U.S. crude oil has stabilized early this morning, after falling to a midday low yesterday of $42.03/bbl, breaking a six and a half year low (see chart below). Huge stockpiles of crude in Cushing, Oklahoma, several refinery shutdowns and turnarounds throughout the country, declining economies in Asia, and the rumor of Iran pumping an additional 100,000 bpd into the global supply gut are all putting downward pressure on crude prices in a very bearish market.
Early morning NYMEX movement has heating oil -.0055 to $1.5632 and RBOB -.0280 to $1.6706 while crude stabilizes @ $42.52, +.29. Chicago cash market for both gasoline and distillates remains elevated largely in part because BP’s refinery in Whiting, Indiana lacks its biggest crude distillation unit. Chicago RBOB is currently 75 cents over the NYMEX and ULSD is 7 cents over. How does this impact our local market? Well, we are currently operating in what the industry calls an arbitrage. Product east of Ohio, which is supplied from New York Harbor, is much cheaper than product around the Ohio markets which is influenced by the Chicago cash market. This inherently causes long lines and product shortages at the racks in our geographic area, while racks that are physically closer to the impacts of the Chicago cash market have excess inventories of high priced product, and no one in line to pull it. Eventually, market analysts believe the markets will stabilize each other; the Ohio markets of 40 over the Merc should pull back to 15-20 over.
Upstream consequences from major refinery turnarounds have resulted in a 1.3 million barrel per day build in crude inventories in Cushing, Oklahoma, the major storage center for all Midwest crude. BP’s 415,000 bpd facility in Whiting is running at 1/3 of its capacity and will continue at that low level a month or more. Additionally, a report from Reuters yesterday indicated that EXXON plans to shut down a coker at its 238,600 bpd refinery in Joilet, Illinois, another Cushing-fed refinery.