Even with U.S. inventory levels at historic all-time highs, WTI seems to be focusing simply on the talks of a Saudi-Russia output freeze, which has the market rallying up over $2.00 this morning to $31.75. Some believe that the Baker Hughes oil rig report broadcasting a decrease of another 26 oil rigs, bringing us down to December 2009 levels, may also be a factor contributing to this morning’s WTI gains. Refined products can be seen up $.0418 for heat and up $.0488 for RBOB.
OPIS reports that Bank of America Merrill Lynch’s technical analysts believe we may have hit rock bottom. They indicated that a “sideways basing” pattern is beginning to develop, and that we should see WTI fluctuate between the $27.94 - $33.18/bbl throughout March and then picking up some strength into April.
In the Chicago Cash Market, RBOB and CBOB both finished the week down over 3 cents and 5 cents respectively. However, even with record final product inventory levels, we may see a spike in RBOB futures in response to both the RVP changeover, as well as several Midwest refineries slated to cut runs. CVR (75,000 bbl/day in Wynnewood, OK), (Valero 185,000 bbl/day in Memphis, Tenn.), PBF Energy (175,000 bbl/day in Toledo, OH), P66 (218,000 bbl/day in Ponca City, OK and 330,000 bbl/day in Wood River, Ill) all plan to cut runs this month due to thinning crack spreads.
In layman’s terms, a crack spread is the differential between the price of the crude oil a refinery purchases and the value it sells the refined products for. With operating costs relatively unchanged and the price of refined products at record lows, it’s no shock that refiners’ profit margins are “thinning.”