RightSide Commentary -Energy

Oil prices hit $123.80 intraday and all the news was bearish. Exxon said it was lifting the force majeure on its Nigerian oil exports because the crisis had ended. The weekly oil inventories showed crude levels rose by 5.7 million barrels over the last week compared to expectations for only a 1.6 million barrel gain. It was the largest weekly gain since March. Refinery utilization fell again to only 85% as more refineries cut back on production with gasoline supplies building. Utilization is near 16-year lows due to the gasoline glut and high crude prices are making it unprofitable to refine fuels. Where is the bull when all the news was bearish?

Gasoline inventories posted the first gain in the last eight weeks and inventories are already 7.6% higher than last year. Crude imports rose again by 0.4 million barrels per day to average 10.6 mbpd. This is the highest weekly level of imports since the week ended August 17, 2007.

The EIA said the national average of gasoline prices should peak at a new record of $3.73 per gallon in June. However, with crude rising on a forecast of trouble ahead from Goldman Sachs the odds are very good we will see $4.00 this month. The EIA is very conservative in their projections or at least in their public forecasts. As a government agency they would get no brownie points for scaring consumers with $4.25 estimates. They would rather raise their projections a couple pennies at a time just over the current price so they don't have to take the heat for being the bearer of bad news. The national average of gasline prices was $3.61 today.

The weekly MasterCard SpendingPulse report showed that gasoline demand fell -5.8% from year ago levels. This report has shown gasoline demand falling in 12 of the last 15 reports. The report comes from an analysis of credit card swipes at about 140,000 U.S. gasoline stations. The weekly EIA report showed demand at 9.19 million barrels per day compared to MasterCard's 9.15 mbpd. There is normally about a 2% difference in the numbers. 

Jim Brown

OptionInvestor.com