Oil Prices: Uuf Dah!

That was my reaction today when I saw how high oil prices went today in world markets. In the US,

“The supply situation is dire,” said Phil Flynn, a senior energy trader at Alaron Trading Corp. in Chicago. “Crude-oil inventories are dangerously low. We are only one small problem away from the minimum amount needed to operate the nation’s refineries. If refiners want to make more distillates and gasoline, they are going to have to pay up.”

Lower Inventories

Demand for heating oil will be robust in the days ahead because of cold weather, analysts said. Temperatures in the U.S. Northeast, the fuel’s biggest market, will be below normal for at least 10 days, according to meteorologist Joel Burgio at Meteorlogix LLC in Lexington, Massachusetts.

“It looks like the incentives to make heating oil are so strong that refiners aren’t making gasoline,” said Michael Busby, manager of crude oil and refined products trading at Northville Industries Corp. in Melville, New York.

A lot of what’s driving the incremental increase in the US is the report today from the DOE that

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.0 million barrels, and are 53.1 million barrels below the level last year at this time. Crude oil inventories in PADD II (Midwest) also fell, and are the lowest ever since EIA has kept regional inventory data. Distillate fuel inventories fell by 4.5 million barrels, with most of the decline in high-sulfur distillate fuel (heating oil). Total distillate fuel inventories are below 100 million barrels for the first time
since May 2000. Motor gasoline inventories fell by 3.1 million barrels last week and are below the low end of the normal range. Total commercial petroleum inventories, at 898.0 million barrels, are 124.3 million barrels less than last year at this time.

Total product supplied over the last four-week period averaged 20.1 million barrels per day, or about 3.7 percent more than the same period last year. Over the last four weeks, motor gasoline demand is down 0.8 percent, but distillate fuel demand is up 20.9 percent compared to the same period last year. Kerosene-type jet fuel demand last week, partly due to snowstorms temporarily shutting down some Northeast airports, was at its lowest level since the week ending September 21, 2001.

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