Market Report: Oil Market Succumbs to Demand Dreariness
Forget all that talk of a weak dollar or soaring gold price. In a light holiday trade the oil market succumbed to a bought of demand dreariness. Oil is tired and it could not get a lot of reassurance from the downgraded GDP that demand is getting ready to turn the corner anytime soon. Even the Fed Minutes dampened the enthusiasm in this market because despite the fact that those rates will remain low almost indefinitely it seems that the road to recovery is going to be long and harrowing. It fact, the Fed things it may be 5 to 6 years before the economy gets back to its previous machismo. I mean how you can get too excited about the demand side for oil when the labor market ccontinues to fall apart and job losses remain widespread across many industries.
This demand weakness in oil is being reflected quite clearly in the refining industry. As we told you, Valero closed its Delaware refinery this week. And instead of clamouring to build new refineries we have a hard time keeping the ones we have busy. Yesterday, the Energy Information Agency said that refining capacity in the United States may be as much as 2 million barrels a day more than needed from October through January. The spare capacity means that refinery outages that normally might drive up price might not and are not expected to interfere with meeting demand at least until January. We have glut of spare capacity and at least 10 percent of available refinery capacity may not be needed as demand for products...The EIA projects that demand for distillates will be down 7%.
Yet the API Reported a surprise draw in distillate stocks to the tune of 2.36 million barrels. The crude increase was in line with my projection increasing by 3.35 million barrels and gas supplies up 1.71 million barrels.