Con-tango

Refinery fire ignites oil prices

Today’s commodity prices resumed their upwards trend. Apparently triggered by a fire in Valero’s Saint Charles refinery, resulting in a loss of 55,000 bpd of low sulfur oil production.

According to Marketwatch:

Over the weekend, Valero’s St. Charles refinery in
Louisiana suffered a fire in its 48,000 barrel-per-day distillate
hydrotreater, which removes sulfur to produce cleaner burning fuels.
The fire also damaged wires, prompting the shutdown of other units that
were not directly affected by the fire.

As a result, low sulfur diesel
production was reduced to nothing from 55,000 bpd, said Valero in a
statement, while finished gasoline has been cut by about 25,000 bpd.
While it’s still not clear when the hydrotreater will resume
operations, the other units should start up by the end of the week,
restoring gasoline production by Memorial Day weekend-the traditional
start of the nation’s driving season.

Although, by the end of the day the upwards thrust waned in expectation of tomorrow’s EIA inventory reports.

It is the start of the summer driving season; we are in neutral territory. If tomorrow’s inventories are less than expected, oil prices should rise significantly and resume their bullish trend; if not, we will see new lows.

Interested in last week’s EIA inventory charts to see where we stand?

As I mentioned last week, during March an important drawdown in gasoline inventories helped to lower the tab on imports and allow the Katrina postponed refinery maintenances. But, will the pickup during April of larger refinery production and imports of gasoline show up as an increase in inventory, or will consumption assert it’s toll?

Source: EIA The Week in Petroleum; Gasoline Section

Distillate inventories seem to be within the upper boundary of their normal range; so distillate prices are in a mild down pressure.

Source: EIA The Week in Petroleum; Distillate Section

Oil inventories are comfortably above the normal range, by 20 mb. If gasoline imports were cut down during March, it was probably with the intention of using this excess inventory; so, we should see a significant drawdown to reduce the excess by 10 mb at the least –if not, the buildup of this stockpile has a purpose: to bring oil prices down.

Source: EIA The Week in Petroleum; Crude Oil Section