US refiners stockpile unfinished oils, aid profits
By Janet McGurty
NEW YORK, July 10 (Reuters) - The growth of a small, often overlooked line item on the balance sheet of U.S. weekly oil inventories indicates that the market is fundamentally out of balance.
The steady rise of the amount of "unfinished oils" in the Weekly Petroleum Status Report, the Energy Information Administration snapshot of oil supply and demand in the world's largest consuming economy, means refiners are stockpiling the semi-finished oils in an effort to keep profit margins aloft.
Oil's recent price strength has puzzled many long-time watchers who note that low demand for gasoline and diesel combined with higher-than-expected crude costs have sliced into refiner's profit margins.
"I'm not sure this isn't an intentional ruse, intended to support refining margins. It's a bubble in the making for sure," said one European trader.
Unfinished oils, like the crude it comes from, is a semi-processed feedstock used by refiners to make more complex products like gasoline. Supply of the semi-finished stocks are up over 7 percent from last year.
Most recent monthly demand data for unfinished oils shows that in April 2009 refiners made or imported 5.2 million barrels more barrels of unfinished oils than they used.
"In an ideal world, products supplied of unfinished oils would always be zero because there is no end-user demand," said Michael Conner, petroleum analyst with the EIA.
"Refiners should be using all of the available supply of unfinished oils as inputs to make finished petroleum products."
Most recent weekly data shows that 90 million barrels of unfinished oils were available and ready for processing in addition to the 347.3 million barrels of crude oil and on top of ample supplies of gasoline and diesel.
Conner said inconsistent production classification between importers and exporters of prospective feedstocks can cause demand numbers to be skewed.
But he also said that demand at the U.S. level can turn negative -- as seen in April -- when a refinery makes more unfinished oils than it uses.
"Product inventories have built to uncomfortably high levels relative to demand and refiners face a low-margin and low-volume environment for the remainder of the summer and fall," Simmons & Co International said in a client note earlier this week.
Poor demand has cut into gasoline profit margins during the summer driving season -- a historically profitable time for the refining industry -- forcing refiners to slow production.
Refiners have slowed or shut down gasoline-making catalytic cracking units and moved specific cat feedstocks like vacuum gas oil into storage tanks.
But as demand for unfinished oils wanes and supply grows, some refiners are taking more drastic steps to try to balance supply and demand.
Valero, the nation's largest refiner, has taken a major step to cut back on semi-finished feedstocks in its system.
Earlier this week it began a planned two- to three-month shutdown of its 275,000 barrel per day refinery in Aruba, a major supplier of unfinished fuels into its refining system.
Valero has said it will use the downtime to do maintenance on some of the process units.
"After a period of approximately two to three months, Valero will re-evaluate the economoic situation and determine when refinery units might be restarted," said Bill Day, a spokesman for the company.
forexpros.com
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Everybody keeps stockpiling inventory in every way possible - as crude, as distillates, as feedstocks, onshore and offshore. They're hoping for a recovery that isn't here, and isn't coming soon.
Sooner or later, something's gotta give. Like price.
Jim |
