Frederick P. Leuffer, CFA - Energy Refining & Marketing Insights - Week Ending February 5
Gulf Coast margins were higher for the week on higher gasoline and heating oil prices. Higher product prices on the East Coast were not enough to offset higher crude feedstock costs. Product prices in the Midwest and on the West Coast were mixed, though margins fell on higher crude feedstock costs. With gasoline margins still above distillate margins in all regions, and distillate inventories still high, refiners have continued to produce gasoline at a higher-than normal rate in order to minimize additional production of distillate products. Despite voluntary run cuts, last week’s gasoline production was 329,000 b/d higher than a year ago, a trend we have observed in the last four weeks.
Reports suggest crude oil exports from Russia have held steady, breaking a promise made to OPEC. Without cooperation from non-OPEC producers, OPEC’s market share is expected to fall further. Will OPEC follow through on its threat to launch a price war? Was Russia used as a scapegoat? Oil supply and demand are delicately balanced. OPEC must make a decision: enhance near-term revenues, or protect market share. We sense investors in oil shares are focused on the potential for oil price recovery more than they are on the possibility of further significant correction for this commodity. Although we see oil prices as being in “middle ground,” and acknowledge that forecasting the next move is difficult, we remain cautious on oil and oil stocks. We continue to believe that OPEC is more concerned with market share protection than it is with revenue enhancement. The possibility that oil prices sink below $15/bbl is still very real, in our view. |
