Global over-supply, once more, is the big picture. Last Thursday we witnessed a significant drop in crude oil prices and refined product prices after the EIA reported less-than-projected draws in U.S. inventory levels. The balancing act could not be more prevalent. U.S. production and output is down, however, strong imports are offsetting any price spike. From a global standpoint, U.S. production weighs in on inventory levels, although Stephen Schork, President of a consulting company in Villanova, PA, recently explained to Bloomberg.com that OPEC makes up for every lost barrel of U.S. production, thus, the supply-glut is unchanged from that regard. In fact, Iran’s increased production nearly mirrors the decline in U.S. production. The Baker Hughes rig count report did show an increase of ten rigs last week, which is now the fifth weekly gain in the last six weeks, however, overall output is down.
Most financial firms, traders, and investors have quite a bearish outlook on oil. After oil prices dropped to a two month low last Thursday, Barclay’s adopted a six to eight month bearish outlook on the belief that inventory levels are going to increase exponentially after the busy driving season is over as well as increased Chinese production coupled with less than stellar global growth will add to the over-supply of crude. Likewise, according to CNBC.com, Bank of America – Merril Lynch focuses on the Organization for Economic Cooperation and Development’s (OECD) oil supply level which is up nearly three times the 5-year seasonal average.
Today’s market movement has been all over the place. Currently crude is down 50 cents to $44.91, RBOB is up $0.0194 and Heat is up $0.0046. Chicago cash market RBOB has been strengthening lately due to refinery turnaround and tight supply. On the other hand, New York Harbor cash prices for gasoline dropped over ten cents last week because of an abundance of supply. PA to OH arbs are reflecting NYH weakness, therefore our region’s geographical position sets up nicely for product movement and margin enhancements.