Podcast: Talkin’ APIs and Gasoline with Andy Lebow and Edward Meir

This is basically a move to take away the agenda so to speak from Prime Minister May and bring it back to parliament. Parliament is, hasn’t been happy with the fact that, you know, she’s, she’s kind of cloistered all the negotiations within our office. People aren’t really getting a much details, are much input into what she’s agreed to. So they want to open it up to, to a vote on, on different options. The problem is there is not going to be a majority for any of these plants.

So April 12th is a key cutoff date by, by that point the UK has to tell the EU what kind of plan it’s going to put forward. Doesn’t come up with a plan. It’s basically going to be out of the union in a hard Brexit by May 22nd so all in all, that’s a lot of, but as far as the markets are concerned, sterling is not doing very much. It’s a, it’s firmed up actually over the last day or two. It’s now at one 32. Again, I think mark is just don’t know what’s happening. It’s really literally an hour by hour type of a thing.

We could even see her resign. So we’re watching that carefully. I think eventually they will be some sort of a deal that should strengthen sterling. The talk is that it could rally maybe two, one 35 to one 40 from one 32 right now.

And if there is no deal or no Brexit, uh, we could maybe drop down to around one 25. So we’re watching that item to the trade talks, the US trade rep, Lighthizer and secretary in the treasury secretary or both in Beijing today. Uh, another round of talks with the Chinese. I don’t think anything will happen this week because there’ll be another week of negotiations next week in Washington. Uh, which suggests to me that, that this thing is going to take some time before it’s resolved. Uh, stock market seem to be, you know, taking things in stride. We, we’ve kind of had a bit of a sideways move in equity markets over the course of March. The Dow hasn’t really done very much a trading between 25, four to 26 more or less. It’s, it’s a much tighter range than in February and January. Bumping along resistance, turning to base metals.

Again, very sideways action. Kind of the same in a lot of markets as, as Andy will talk about later, but a copper aluminum zinc training at at relatively high levels. But, but the rally has sort of run out of gas for now and we are kind of just stalling for the moment and I think we’ll, we’ll see more of the same going into April. Finally gold. Uh, gold has had a good run in March, a relatively good it, it got to a low of 1280 early on in the month and got up all the way to 1320, so about a $40 an ounce move. It’s retraced the little bit over the past two days. Um, but we still think gold could do a bit higher because the dollar seems to be weakening dramatically, especially now that the Fed is on, is on hold and reiterated its very dovish message last week saying that they’re not going to be raising rates at all this year.

Interest Rate Cut?

In fact, talk is that there will be a rate cut this year. So I think that that’s kind of bearish for the dollar short term. That should help give some support to most commodity markets, probably including crude as well to some extent. Certainly to go certainly to silver, platinum and palladium has, I have started to move on their own accord on their own steam. They’ve kind of decoupled from a gold and silver. Platinum has been kind of the laggard compared to palladium, but it’s, it, it started to move over the last two weeks, but palladium as we speak is finally in the midst of a rather substantial correction.

So we’ve been calling for that for some time now. It seems to be happening. The charts are not, are not looking as good as they were. We’ve had a $50 move, a downs, sorry, $60 move down so far today and a $40 move down yesterday. So finally we’re starting to see palladium a buckle a bit here and uh, you know, we’ve been talking about that for the last couple of weeks. So it’s finally starting to have, well, I’ll turn it over to you. I don’t know if I left anything out, but a net net, kind of a steady range markets envision for April, nothing dramatic on the upward downside till we work through some of these uncertainties.

Okay, thanks.

Crude Oil and Gasoline Price Update

That was a really great summary of what’s going on in, in many markets. I’m going to talk a little bit about the crude market as well as a, actually a lot about gasoline. But let’s, let’s start with crude. As Ed mentioned, crude spin trading in a narrow range and a is that has now arrangement moving up.

In fact, we just about made a new high for the year yesterday. And as we had expected, actually we were looking at our last month, they report, we said that we thought crude could get over 60 and possibly up to a 61. So that was a pretty, a pretty good call by us on crude oil prices, but, but the real story has been gasoline prices. And once again, we had a bullish, a report on a weekly report today on gasoline with the draw of 2.9 million, which is around what the market was looking for.

Gasoline stocks have now drawn by 20 million barrels. So since February 8th. Now, part of that is,   is seasonal as, as winter greatest moved out. But you know, that that is a much higher than than seasonal draw. And really what’s happened is refiners have had a hard time returning from turnaround. So there’ve been problem after problem, particularly in some of the larger Gulf coast are five refineries. And as a result, gasoline production is a well below where it should be.  you know, earlier this year and late last year and almost all through last year, we were worried about gasoline because supplies were, uh, more than ample. And now we’re going to the season with a, basically average supply numbers at, uh, 26 days versus the four year averages is 26 days. So refiners are really gonna have to start getting their act together. The turnaround should have been over by now.

You know, we look at crude runs, their, they’re averaging only 16 million barrels a day. Last year they were averaging 16.8 million barrels a day by four week average ending. Now, so refiners, they’re just not, you know, they haven’t been able to get there, uh, plants up. Eventually they will. But in the interim, it means that, uh, gasoline is tightened. Refinery margins have improved. And that of course is help the, uh, I think the, the underpin to a certain extent, the, the, uh, tire picture in, uh, in crude and I, I, I know the market is it focused thought it whatsoever because, uh, the, the market has really been focused more on the, on the macro, rightly so.

Venezuela and Iran Oil Exports Decline

And as ed mentioned, you know, the uncertainty and other markets, we of course have some major uncertainties in our market from a geopolitical standpoint with Venezuela still having major problems.

Now their infrastructure, which has already been collapsing is going into a, a further collapse as a, the power outages are a really interfering with with crude production. The, they’re having trouble sourcing ships. So  you know, I think their crude production, we’ll see where that, where it comes out. But I think it’s going to go, I think we’re looking at about 800,000 barrels a day, maybe even lower versus just a couple of months ago at 1.2, 1.3 million barrels a day.

So, so things continue to it just continues to erode badly in Venezuela. And of course the, the big decision coming up is on Iranian sanction waivers and where the administration is going to go, uh, that that needs to be decided by early May. You know, the administration has been talking about getting  exports down to a zero. They’re right around 1.2 to 1.3 million barrels a day.

You know, looking at the supply demand numbers, we actually need a ramp to be around here as it is. Crude is pretty tightly balanced right now. Second quarter I think there’s going to be a draw third quarter that’s going to be a draw. And you know, if we were to lose like another half million barrels a day of Iranian crude, it’s not exactly clear where, where that’s going to be replaced. Unless the Saudi step up and start increasing production, cause us production is not going up half a million barrels is not going up half a million barrels a day.

So you know, the market, the market looks tight and it’s also shown in, in the, um, you know, if you look at the curves, every single market except the first three months or four months in WTI is heavily backwardated. So, uh, you, you look at the curves and you know, it, it’s expressing what we see.

You know, what we think, you know, things are, things are really tight. And, uh, you know, under that scenario, you know, it looks as, it looks to me as if, if there could be some more upside here, uh, on the, uh, on the crude market.

I just have a quick question on Venezuela. Is anyone actually buying the crude now?

I mean, how can you even buy it with all these sanctions in place and who is buying it? Well, the, they all the, the Chinese are buying and the Russians are buying, right?  So, um, yeah, it figures there. They’re the ones with the most invested in there in terms of loans and stuff. Like, yeah, yeah. China.

So China and Russia have been, you know, I’ve been buying, but you know, there’s going to be less and less and less and less available because they, you know, they can’t get it out and they can, they can’t because of it, because of the sanctions. Insurance on ships is a big issue. Right. And that’s a heavy, as we’ve talked about, you know, that’s a, that’s a heavy crude that a lot of refineries really, really demand. Um, particularly here in the, uh, in the u s so, um, you know, us has replaced some of the vents, uh, with, um, Mars actually, which is an off shore grade, a medium. So, you know, medium sours replacing the, replacing the heavy sours.

Andy, I think we talked last time, they may not be paying for this group because they have such a debt load and as a way that has such a debt load with both China and Russia. So it may not be helping any of their coordination situated.

EIA Misses Target

Probably not. Yeah, I mean there, there are, these are all repayments to Russia and China and you know, even if Maduro was to fall, you know, it’s not clear how quickly they can get their, uh, you know, that the crude oil infrastructure up, you know, it’s going to take many months if not years to, uh, to get going. But at least they’ll be able to export a one, one, one last thing that I wanted to add on, uh, you know, on, on the EIAs and uh, and crude, you know, we look at a crude, crude inventories are, are basically running below the four year average by 30 million. Uh, we’re at 440 million barrels. The EIA in, in their short term energy outlook had us at 480 by the end of March.

So they missed by 40 million barrels at, I know I could do bad at. And Marty, I know I could do better to better than last, but uh, you know, means that because EIA was also forecasting this big, you know, over supply of, of domestic crude and it’s, it’s, it’s not going to happen. So that, that’s another, you know, I think another supportive supportive factor in the demand numbers too. You know, the big coming in. Okay. You know, they’re not rip roaring, but um, you know that they’re not really fading. So, you know, I I the to sum sum up, I think crew, I think the petroleum complex looks, um, you know, still looks pretty constructive, aren’t then, you know, we, we still have some upside here.

Andy, if I can go back for a minute to the gasoline story you are giving, right?

Please. Marty,

Winter vs Summer Gasoline Grades

You quickly mentioned the change from winter grade, the summer grade, right? A number of folks on the EKT Interactive network are new to the industry. So let me take a minute and you and I can exchange some of the background on gasoline. A lot of people don’t know that the gasoline basically is only one component as some shot of the crude oil. A lot of the other components are or heavier, a few. Oh. And a lot of their refineries units for basically trying to destroy fuel oil and make gasoline.

Okay.

So with that in mind, it’s a very complex operation. So there is a system in the refinery called gasoline blending and over 30 components go into the gallon of gasoline, which you are putting into your car.

Okay.

In the winter, one of the components that is added to help as far as more easily starting phone, whether it’s beauty in the summer, uh, the butane chain is too volatile and was taken out of the, uh, out of the gasoline blend. So this is the term that Andy mentioned earlier, the difference between the winter grade in the summer. Great. So, Andy, if you can go in for a minute as to when they start switching over and what kind of impact that sometimes has on the market, I think that would be helpful.

Well, it’s weird this, there’s always a premium for the, uh, for summer grade because as you mentioned, it’s more expensive to make depending on, depending on the, uh, the blending operation. So oftentimes, you know, when you’re looking a gasoline, curve, you know, you’re always going to see March gasoline at a, at a pretty good discount to April gasoline, April futures.

Uh, April futures is the first spring months, spring, summer, great month, uh, with the Lower Reid Reid vapor pressure and it continues to go lower, uh, through throughout the summer. And is, it is more expensive to make, uh, so you’re always going to see winter grade platt gasoline price slower then, uh, then some are grade. And of course, wholesalers, the dealers have to prepare by getting, by liquidating their winter grade, the grade stocks moving into their, their summer grades, I think May 1st, this is the, um, you know, where they have to have it at the, at the, um, or April 16th, I’m sorry, April 16th at, uh, at the pumps. So you know, th th there’s always going to be a differential between the, between winter grade and, uh, and some are grade.

Okay.

And there’s also a logistics aspect of this changeover as you, not only the refiners have to switch the grades, but every terminal, every distribution point, uh, gas stations themselves finally has to have, make sure that they have you correct. Some are great and before people start driving to the features,

okay.

Right. You know, the, the gasoline and again, you know, you’ll see this big gap for the chart is getting back to the future side for the chart is, you know, you always see a big gap up for, well, uh, you know, March expires, April becomes a April pickup spot and s and w the first winter grade. Similarly, um, September is, is the last summer grade contract, uh, October the first, uh, the first winter gray contract and the Rvp, Reid vapor pressure numbers, um, increase from September, October, November, December, et cetera.

Thanks, Andy. That was very, very helpful.

Thank you, Marty for, for bringing that up. But, uh, again, I think  you know, this been so much focus, saw law, you know, and crude of the geopolitics. You know, it’s nice to talk about some of the real, cause there’s some of the real made from crude cause crude. You know, it doesn’t really have very much very much use, you know, other than running it through a ruddy it through a factory to make how to make products.