Inventory Finally Arrives

Jim Brown
 
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The long awaited inventory surge showed up last week after a long period of declines to end 2013. This going to be the opposite from the expected draws in natural gas again when reported on Thursday.

Crude inventories rose by 6.4 million barrels and the first major increase in two months. The gain was helped by a 510,000 bpd jump in crude imports or +3.57 million barrel jump for the week. It is surprising that inventories jumped that much since refinery utilization also spiked to 88.2% from 86.5%. Refiners only saw an increase in inputs of 200,000 bpd to 15.42 mbpd. However, output jumped from 18.96 mbpd to 20.05 mbpd. The refining process creates more volume as the heavy oil is broken down into its lighter components and volume swells. That is the highest output of refined products in five weeks.

Distillates declined -4.6 million barrels after a sharp decline of -3.2 million the prior week. This is a surprising drop and I checked the components and -3.1 million barrels were in diesel. Jet fuel only declined -500,000 barrels. I am struggling with the sudden decline in diesel inventories when the super cold weather and heavy snow should be shutting down a lot of traffic in the Northeast. Heating oil inventories actually rose +1.1 million barrels. I would have thought that category would be showing a decline given the cold weather. Since last week was a holiday week and the numbers were a little flaky we may be seeing a catch up in reporting this week and that is causing the imbalance.

Gasoline demand rose +520,000 bpd or 3.64 million barrels to 8.584 mbpd. Gasoline inventories fell by -800,000 barrels and imports fell by 62,000 bpd. Again, I don't understand the sharp increase in demand in a dramatic weather environment.

If the jobs report next Friday shows a sharp increase in employment then maybe all the conflicting numbers will be due to people returning to work.

With another 3,500 flights cancelled on Tuesday and the weather problems continuing for the airlines the consumption of jet fuel is going to slow.





The natural gas market is still crazy. Expectations are for another -200 Bcf draw from storage when the report is released on Thursday. Gas prices have gone through the roof with a spike to $5.69 at the close on the continuous contract. The worry is that there will not be enough supplies in storage if the abnormally cold winter weather continues. Freeze outs have lowered production and warmer weather will need to return to restart those wells.


Propane prices continue to rocket higher with companies in the Midwest now charging over $5 a gallon in some places. Nationwide the average price is $4.014 but that takes into account the coastal regions where propane is plentiful. That is $1.72 per gallon higher than the same period in 2013. The Midwest is suffering from localized shortages that are pushing prices higher. Prices jumped by +1.05 per gallon for the week and the largest single weekly increase since the survey began in 1990.


The "days of supply" of propane in inventory have fallen to 18.5 days with six more weeks of winter. This is the lowest it has been in January since records were started in 1993.


Propane inventories fell by -3.6 million barrels to 31.7 million. That is a whopping 25.8 million barrels or -44.9% lower than the same period in 2013.


Market

It was another fun day in the markets as a solid bounce in the future on Tuesday night melted into another gap down open and a -189 point decline on the Dow. The markets were weak all day with a -7 loss in Boeing and -3 loss in Visa knocking the Dow for an opening loss and the selling never slowed.

The Fed did announce another $10 billion cut in QE and said they would continue to cut at future meetings. The market took another dive when the announcement was made. The Dow declined to strong support at 15,700 and the S&P returned to the strong support at 1,775 that stopped the drop on Monday. The Nasdaq gave back -46 points as a number of prior market favorites imploded.

The decline today put the markets at a critical low and ANY further decline beneath those support levels mentioned above would suggest we are going to a full 10% decline. Beware long positions below 15,700 and 1,775.

Jim Brown

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