Demand worries overshadowed a drop in crude stocks after the Energy Information Administration (EIA) seemed to suggest refiners going into maintenance and a weakening demand for gasoline helped send the market higher. China's manufacturing data did not help the mood either as oil decided to focus on the negative along with some seasonal weakness.
At first, the crude number looked bullish after the EIA reported a drop 0f 1.9 million barrels and Cushing, Okla., stocks at the Nymex delivery point were down 462,000. That shows signs that U.S. oil output is falling but not as hard as the American Petroleum Institute report seemed to suggest a day earlier.
Also a surprise was the 3-point drop in refinery runs, which suggests that perhaps crude demand will weaken as maintenance season may be finally underway. The EIA reported that U.S. crude oil refinery inputs averaged 16.2 million barrels per day, 310,000 barrels per day less than the previous week's average. Refineries operated at 90.9% of their operable capacity last week down from 93.1. Gasoline production increased last week, averaging over 9.5 million barrels per day. Distillate fuel production increased slightly last week, averaging 5.1 million barrels per day.
Gas demand also seemed a bit weaker after the EIA reported that gasoline inventories increased by 1.4 million barrels last week, and are in the upper half of the average range. Yet, big picture demand seems good as the EIA reported they based on total products supplied over the last four-week period averaged 19.7 million barrels per day, up by 1.6% from the same period last year. During the last four weeks, motor gasoline product supplied averaged about 9.2 million barrels per day, up by 3.0% from the same period last year. Distillate fuel product supplied averaged 3.8 million barrels per day over the last four weeks, up by 1.3% from the same period last year. Jet fuel product supplied is up 5.7% compared to the same four-week period last year.
The EIA warns that if oil prices remain lower for longer, then upstream investment is sure to follow it in lasting lockstep. As reported by Dow Jones, "It is possible that investment levels over the next several years will be significantly lower than the previous 10-year annual average." It notes that in 1981 and 1982, after oil prices jumped, investment reached more than $100 billion (in 2014 dollars) but then fell to $30 billion to $40 billion per year straight into the early 2000's when crude oil prices were low. From 2005 to 2014, annual investment steadily soared to $158 billion, averaging $122 billion. But now it's heading back toward $100 billion.
In metals, the platinum palladium trade is fascinating! The Volkswagen emission scandal caused platinum to fall to a 6a and a half year low as the emissions technology used in diesel engines is predominantly platinum. Palladium is used mainly in unleaded gas cars. Concerns about a drop in demand for diesel cars as well as questions that the current technology can meet current emissions standards is going to keep this trade on edge.