March 17, 2015
WTI-Brent Spread to Widen again as U.S. Stocks Rise: BNP Paribas

The discount of West Texas Intermediate to Brent crude futures prices is expected to increase by another $4/bbl to $12/bbl, as more builds in U.S. crude stocks amid lower refinery runs and elevated production might saturate storage, further pressuring spot WTI prices, according to BNP Paribas.

The French bank said that North Sea benchmark Brent futures should fare better than WTI largely because of high European refinery runs due to good margins there. Despite talks of growing African exports from Libya and Nigeria, supply risks remain commonplace from across the Atlantic, supporting Brent prices.

The bank said that it now expects the May WTI-Brent spread to widen to $12/bbl from currently $8/bbl. The scope of widening this time around should be more limited than a move from $3/bbl in late January to around $13/bbl in February, it added.

"The build at Cushing, alongside that on the Gulf Coast, reflects the basic reality that current U.S. crude runs cannot absorb domestic supply that so far remains unscathed by the decline in rig count. This state of affairs is expected to persist for the better part of this quarter and next," BNP Paribas told clients in a note on Tuesday.

Last week, U.S. government data showed crude held in storage tanks at Cushing, Okla., the delivery point of the NYMEX futures contract, rose to a near record high of 51.5 million bbl, about 21 million higher than year-earlier levels.

Market watchers said logistical issues could surface at around 65 million bbl, or in late April assuming the current rate of stock builds, even though the entire Cushing infrastructure can in theory hold 75 million-80-million bbl.

BNP said that the market may not see meaningful crude draws until June-July, a long time after the completion of refinery turnaround in April.

March 12, 2015
Vitol's 2014 Revenue Drops on Oil Price Slide

Vitol, the world's largest independent oil trader, traded 268 million tons of crude and refined products in 2014, 3% lower than the prior year, as revenues slumped. Vitol traded 276 million tons in 2013 and 271 million tons in 2012.

Revenues last year were $270 billion, $37 billion lower than 2013, the company said in its annual 2014 results today.

"As the largest independent trader of energy, the rapid slide in the price of crude in the last quarter of 2014 impacted our headline revenue figure which has fallen to $270 billion. For a brief time the market structure presented some interesting opportunities for a physical trader, notwithstanding the additional challenges of hedging physical cargoes in a highly volatile market," Vitol chief executive officer Ian Taylor said in the statement.

Vitol said that "despite an improvement in near-term product demand, questions remain on both the supply and demand sides" and described 2014 as a "demanding year."

The company is the dominant supplier of jet fuel in Europe, with about 20% of market share of imports of the middle distillate into the region, according to tanker tracker information compiled by OPIS. Vitol is also a key player in the ultra-low-sulfur diesel and gasoil market, shipping from Russia into Europe and West Africa.

The oil trader is investing $50 million this year through Varo Energy, a partnership with the Carlyle Group, that owns Switzerland's Cressier refinery, formerly owned by Petroplus, and has a 45% stake in Bavaria's Bayernoil refinery, as well as Germany's Petrotank storage facilities.

Vitol-controlled vessels undertook 6,053 voyages last year, the company said. At any one time, the trader says, it handles about 5 million barrels daily, and has about 200 ships on the water. Vitol is also the world's third-largest spot charterer of tankers for oil and oil products after China's Unipec and Shell, data compiled by OPIS shows.

March 10, 2015
Consumer Optimism Gets Dented by Winter Gasoline Increases

Rising gas prices have extracted a toll on consumer sentiment about the U.S. economy, with optimism plunging to its lowest level since August 2014, according to a survey just released by the National Association of Convenience Stores (NACS).

Consumer optimism fell from 54% to 44% in the survey, against the backdrop of a 29ct/gal increase in national gas prices in the preceding 30 days. Consumers generally expect that the upward trajectory of gas prices to continue, with 73% of respondents believing that gas prices will be higher 30 days from now. February saw just 58% of consumers looking for an uptrend.

NACS hints that weather may have had an impact, noting that consumer optimism was lowest in the winter-battered Northeast. Meanwhile, fuel marketers were facing stiff challenges on the street.

"While prices are rising, retail gross margins on gas are falling and now average 10 cents per gallon, about half of the 19 cents per gallon that they have averaged over the past five years," observed NACS Vice President of Strategic Industry Initiatives Jeff Lenard. "After factoring in expenses -- especially credit card fees -- profit margins across the country are slim or negative at the fuel pump now."

Consumers continue to move the threshold number at which they say they would change their behavior. The median price necessary to reduce driving is now put at $3.50/gal, down from $4/gal at this time last year. Consumers say they would seek out alternatives to drive if fuel prices accelerated to $4.14/gal, and that is down from $4.70/gal in March 2014.

There is some positive news in the findings for fuel marketers. One in five consumers say they will spend more money on consumer goods over the next 30 days, the highest level since December and holiday shopping. Some 27% of younger consumers in the 18-34 age bracket say they will shop more, and 28% say they will drive more, significantly topping the overall average of 17% for these questions.

NACS conducts the monthly consumer sentiment survey to gauge how gas prices affect broader economic trends. The survey was conducted by Penn, Schoen and Berland Associates LLC with 1,100 gas consumers surveyed March 3-6, 2015. Summary results are at www.nacsonline.com/gasprices.

March 4, 2015
Increase in Gasoline, Diesel Imports Highlight Severe
US Supply Dislocations

The severe U.S. oil product supply dislocations are once again highlighted in the recent import flows of diesel and gasoil to the Northeast and the first gasoline open arbitrage window for the West Coast in five years.

While both coastal markets are importing oil products due to refinery issues on the West Coast and a cold snap on the Northeast, the U.S. Gulf Coast is exporting both gasoline and distillates. Gulf Coast products exports have grown substantially in the past year, and the outflow is expected to continue to rise in 2015 on the back of strong refining margins and a need to push products out to keep oversupply at bay.

The severe supply dislocations in the regional markets could be traced to expensive Jones Act freight rates as well as the limited availability of U.S.-flagged oil tankers. Jones Act tanker rates could be three times more expensive than foreign tankers.

The Northeast and the Mid-Atlantic could only receive Gulf Coast supplies via Colonial Pipeline, which has seen consistent pipeline allocations on its main lines in the past several years.

Jones Act ships are used to deliver products to the Southeast from the Gulf Coast, but that option has been limited by strong competition from crude shipping demand.

The niche West Coast market has been adequately supplied by local refinery production for the past few years, but Tesoro's Martinez refinery shutdown and ExxonMobil's Torrance refinery issues have opened up arbitrage opportunities for imports from Europe and Asia.

The West Coast could receive Gulf Coast supplies via ships sailing through the Panama Canal, but it is very rare that the economics would work for this route.

In theory, Gulf Coast, the main refining hub in the U.S., should be able to supply incremental supplies to both coastal markets. However, the high domestic shipping cost kills the arbitrage economics for waterborne deliveries.

Instead, it is comparatively more economical for traders to source foreign oil products from Europe and Asia than to buy domestic fuel from the Gulf Coast.

The Gulf Coast has been focusing on raising its export volumes for gasoline and distillates to South America and naphtha to Asia. West Africa could take Gulf Coast gasoline barrels occasionally.

OPIS has reported recently that a slew of Russian ULSD and gasoil cargoes are headed to the U.S. Northeast to satisfy a higher-than-normal seasonal demand for diesel due to natural gas supply rationing and strong heating demand.

Some of these ships from the Baltic region have already arrived in the Northeast, and more are on the way. However, at least one ship has been diverted to northwest Europe due to specs issues.

On the West Coast, gasoline and alkylates cargoes are expected to arrive in April, thanks to the soaring gasoline prices for both regular and premium grades.

Meanwhile, the Northeast is continuing to import gasoline from Europe, but the arbitrage economics have been hard to put a finger on due to the volatile U.S. and European markets. The European market is net long on gasoline, making it a natural exporter to the U.S.

March 2, 2015
Mystery of Actual Demand Surge Deepens; EIA Suggests Brisk Lift

Gasoline ended the year with a surge in demand, but the debate rages on as to the level of the increase. Energy Information Administration (EIA) data released on Friday showed a huge year-on-year increase of 4%, putting final December 2014 gas demand into the record books at 9.023 million b/d. Taken at face value, the number reflects an increase of 353,000 b/d from December 2013 and represents the highest 12th-month demand level since 2007. Two years ago, December gasoline demand averaged just 8.389 million b/d, according to EIA.

Most refiners and marketers believe that gasoline demand has definitely trended higher, but a 4% leap on a year-over-year basis evokes speculation of overstatement. Executives for publicly traded c-store chains generally reported smaller same store sales increases, and there were even some cases of demand attrition in fourth quarter 2014. OPIS Demand surveys conducted in December, which compile specific station data for about 5,000 sites nationwide, suggest a consumption increase of only 0.5%, with the West Coast and Midcontinent actually seeing softer volumes.

Even more controversy comes if one compares EIA weekly and monthly data. Traders have lost some confidence in demand trends recorded in the Weekly Statistical Bulletin, even though the report still commands the attention of the entire supply community when it is regularly issued each Wednesday morning. The weekly reports issued for December implied that gasoline demand across the 31 days of that month rose a whopping 6.5%, or 566,000 b/d on a year-over-year basis. The monthly report showed the much smaller increase of 353,000 b/d.

Close inspection of all reports suggests that the export side of the demand equation may be vexing EIA data gatherers. The final monthly report for December shows an export average of 679,000 b/d for finished gasoline and further exports of 196,000 b/d of gasoline blending components. The combined figure of 875,000 b/d represents motor fuel that is leaving the United States for elsewhere.

Weekly reports in December saw much more conservative estimates of departures. EIA doesn't issue a weekly estimate of blending components, but showed weekly finished gasoline export numbers that averaged just 356,000 b/d in the five statistical bulletins that cover December dates. So, the amount of gasoline (finished and unfinished) that left the country was 519,000 b/d more than what was suggested by the weekly data.

Estimates of imports, on the other hand, appear consistent and accurate. Weekly reports showed 776,000 b/d of combined blending components and finished gasoline in December. The final monthly report issued Friday listed 735,000 b/d.

A lot is at stake in the EIA data. For example, if year-to-date 2015 estimates are accurate, some 8.744 million b/d of motor fuel is moving from primary (reported) to secondary or tertiary (unreported) storage, and consumption by any measure is brisk. The same eight weeks in 2014 saw gasoline demand of just 8.286 million b/d, so the data implies a year-on-year increase of more than 5.5%.

Numbers recently issued by the Bureau of Economic Analysis (BEA) muddle the issue as well. BEA suggested that gasoline consumption in January 2015 soared by 5.8%, but contends that motor fuel consumption has averaged a 1.8% increase on a 12-month moving average basis.

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