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Just goes to show you…
…Even the oil companies can, at times, be as confused as the consumer when it comes to understanding their own marketing tactics (almost said logic). It looks to us that the refiners have taken up the hobby of reading the heads or tails forecasts as offered by the speculative community. By this I mean that supply and demand is being ignored and the focus switched to nebulous postulations on the U.S. dollar, the equity markets, the Euro, the hurricane season, and the likelihood of an elusive economic recovery in the U.S.
If you look at the inventory data you will see that the oil companies have been convinced that the economy has or is recovering. Refinery runs have increased from 77.7% in January to 91.5% as of last week in anticipation of a marked increase in demand.
Inventories are now all above the upper limit of the five-year average and the demand is not even close to keeping pace. Oops!! As a matter of fact the U.S. economy is not showing consistent signs of recovery, the subjective consumer confidence levels are the lowest they have been in a year, and unemployment remains close to the 10% level. So now we have a situation because of the imbalance in supply and demand that the refining margins will begin to erode dramatically with some calling for crack spread reductions of 75% in the coming months.
By: Roger McKnight, Senior Petroleum Advisor
Has this happened before? What does it all mean for Canada? Find out in this week’s Energy Report. Sign up by sending your email to: info@en-pro.com.