MaxYield Cooperative

Search:

Energy Market Update

09.03.2010

By Chad Besch

Energy Update September 3, 2010

DOE		Stocks			Demand		Days of Supply
Report	Change	Total	2009	Change	Total	2009	Change	Total	2009
Crude	+3.4	361.7	343.4				+0.5	24.1	23.6
Distillate	-0.7	175.2	163.5	+0.299	3.927	3.497	-1.8	47.9	49.7
Gasoline	-0.2	225.4	205.1	-0.011	9.386	9.478	+0.1	24.1	22.3

Inventory reports came out this week with crude oil inventories once again above the average trade guesses. Diesel fuel and gasoline supplies were about as expected. Refinery utilization dropped again to 87.0%.

With diesel fuel supplies in this country at very high levels you would think that supply for fall would be plentiful for the Midwest, right? Well some news that came out this week might show us something different. There are several refineries that feed product to the Midwest that are planning to shut down or slow way down for routine pre-winter maintenance at a time when fall demand could be at its peak. Obviously there are several factors that could make this a non-event or a real mess. In 2005 when hurricane Katrina hit we saw basis levels fluctuate over a dollar per gallon. While it is very unlikely refinery maintenance will result in anything close to a hurricane it is a reminder that basis levels can and have fluctuated dramatically while the futures trade sideways.

While it’s not too hard to think back to a few years ago when diesel fuel prices fell all fall long things don’t look to be shaping up for a repeat of that this fall. At that time crude oil was trading at record levels, twice as high as we are seeing today. While a sluggish economy seems to keep a lid on prices we still seem to find pretty good support every time we trade down to $70/barrel. There are also several tropical storms brewing that could easily keep the traders on the edge of their seats for the next month or so. Supply is good today and basis levels are at normal levels so it looks like a good time to get barrels fill now and be prepared for the fall season that will be here sooner than you know it.

We often compare the price of LP to the price of crude oil to help determine its current value and future direction. Normally that value is between 70-80% but is currently at about 55-60%. That would tell us that LP is cheap compared to crude oil so even if crude oil were to decline it wouldn’t be unthinkable to see LP prices rise. It has been 10 years since we have seen that valuation go to 100% the price of crude so there are some who feel we are overdue and the stars might be aligning to see that happen again this year. Just like diesel fuel there is no way to know for sure what direction prices will go but there does appear to be more potential of a move up than a move down.

Chad Besch
Energy Team Leader
MaxYield Cooperative
West Bend, IA 50597
1-800-383-0003

go back

Markets