Crude rally stalls as fuel prices soften
Crude rally stalls as fuel prices soften
Gross refining margins for producing distillate fuel oil from US crude rose from $14 per barrel in June to more than $25 per barrel in the middle of November.
The US distillate market started the year in substantial oversupply, with inventories well above the long-term average.
But as a result of strong demand, primarily in export markets, the market has moved into an increasingly large deficit as the year has progressed.
Distillate stocks have moved from a surplus of 33 million barrels over the 10-year average in February to 7 million barrels below the average at the start of December.
Stocks have fallen by more than 33 million barrels since the start of the year compared with a 10-year seasonal average fall of 3 million barrels.
As stocks have shrunk, distillate prices and margins have risen to encourage refiners to produce more of the fuel, with a clear uptrend since the end of June.
US refiners have responded by increasing crude processing and distillate production to unprecedented levels to meet demand.
US refinery crude runs have been running at record rates almost continuously since April, according to data from the US Energy Information Administration.
Runs in the most recent week were 800,000 barrels per day (bpd) higher than at the same point in 2016 and 1.8 million bpd above the 10-year seasonal average.
At the end of November, US refineries were processing crude at rates that had only ever previously been seen during the summer peak driving season.
There has been a clear tilt toward maximizing the production of distillate fuel oil to take advantage of higher margins than on gasoline.
US refineries produced a record 5.4 million bpd of distillates in the last week of November, which was 280,000 bpd higher than the year before and almost 480,000 bpd above the 10-year seasonal average.
Most of this extra distillate is being exported to Latin America and other overseas markets with only a modest increase in domestic consumption.
Strong worldwide distillate consumption reflects the synchronized economic expansion across most advanced and emerging economies and the acceleration in global trade and freight.
Distillate is set to remain the main driver of oil demand in 2018, unless there is a recession in the United States or China.
But with refineries focused on maximizing throughput to make distillate, gasoline, which is a co-product, will remain relatively more abundant.
Gasoline stocks, like distillates, have drawn down this year, but the reduction has been far smaller and stocks remain above the decade average.
In the most recent week, US gasoline stocks rose sharply by almost 6.8 million barrels, much faster than the seasonal average.
In the last four weeks, distillate stocks have also stopped tightening compared with the seasonal trend, as record refinery runs and distillate production have finally caught up with demand.
Distillate and gasoline prices and margins have been under pressure since the middle of November, amid signs that fuel markets are no longer in deficit, which has effectively capped crude oil prices.
Signs that the distillate and gasoline markets are no longer under-supplied point to less frenetic refinery runs in future and a moderation in crude demand.
In the near term, downward pressure on product and crude prices has intensified because of the record or near-record bullish positions held by hedge funds in distillates, gasoline and crude.
Portfolio managers have become very sensitive to any indication that inventory draws may be ending and that prices and margins have peaked and might be about to fall.
In the longer term, with developed and emerging markets on track for expansion next year, strong demand for distillate fuel oil should keep margins firm and impart an upward bias to crude prices in 2018.
• John Kemp is a Reuters market analyst. The views expressed are his own.
Visa says over 5 million payments affected by June outage
LONDON: Payment systems giant Visa said Tuesday that a massive technical glitch earlier this month had affected 5.2 million card transactions, almost half of which were in Britain.
Visa, revealing the details in a letter to a British parliamentary committee that is probing the matter, said the “rare” disruption prevented many cardholders form making payments in Europe for 10 hours on Friday June 1.
And the company apologized “unreservedly” for the failure and outlined plans for a compensation scheme.
“Overall, for cards issued both in the UK and elsewhere ... 51.2 million Visa transactions were initiated and sent to Visa’s European systems for processing,” wrote Visa Europe chief executive Charlotte Hogg.
“Of these, 5.2 million failed to process correctly,” she added in the letter to Treasury Select Committee chair Nicky Morgan.
The outage was caused by a “very rare partial failure” of a switch in one of Visa’s data centers, Hogg added. It has since been fixed.
Visa said there were 27.6 million transactions made in the UK during the disruption, of which 2.4 million failed to process properly.
“At its peak, the disruption affected people in the midst of returning home from work, socializing in restaurants and pubs, and doing end-of-day shopping,” Hogg said in the letter published Tuesday.
“We take seriously our important role in supporting financial stability in the UK.
“A disruption to our processing that impacts consumers at any time is unacceptable, let alone during a busy Friday afternoon,” she added.
“We apologize again unreservedly to everyone who was affected by the incident,” Hogg said.
“Visa, together with our financial institution partners, has quickly implemented a compensation program for cardholders.”