Crude Oil Futures Trade Lower Amid Refinery Utilization Decline

Crude oil futures slumped on Wednesday, December 31, 2008, as the US Energy Information Administration reported a sharp decline in refinery utilization despite growing fuel inventories. The steep drop in refinery utilization, its lowest rate in at least 18 years, and the expansion of fuel inventories indicate that demand is not recovering as energy prices fall. Analysts warn that the market is vulnerable to price spikes in the event of a cold blast with low refinery utilization rates.

Key Takeaways:

• Crude oil futures traded 32 cents lower at $38.71 a barrel on the New York Mercantile Exchange, with Brent crude on the ICE futures exchange trading 2 cents lower at $40.13 a barrel.
• Oil inventories at Cushing, Okla., fell by 600,000 barrels in the week ended Dec. 26, while stocks nationwide rose by 500,000 barrels.
• Refinery utilization unexpectedly fell by 2.2 percentage points to 82.5%, the lowest rate in at least 18 years, while fuel inventories grew, albeit by less than expected.
• Gasoline inventories rose by 800,000 barrels, while distillates, including heating oil and diesel, increased by 700,000 barrels, both below analysts' average forecasts.
• Analysts warn that the low utilization rate and growing inventories indicate demand is not recovering as energy prices fall, leaving the market vulnerable to price spikes.
• Addison Armstrong, an analyst with Tradition Energy, stated that "Refinery runs continue to be a worry... a cold blast with that low of a rate of refinery utilization would cause prices to jump up."

Statistics:

• Crude oil futures traded 32 cents lower at $38.71 a barrel.
• Brent crude on the ICE futures exchange traded 2 cents lower at $40.13 a barrel.
• Oil inventories at Cushing, Okla., fell by 600,000 barrels.
• Stocks nationwide rose by 500,000 barrels.
• Refinery utilization fell by 2.2 percentage points to 82.5%, its lowest rate in at least 18 years.
• Gasoline inventories rose by 800,000 barrels.
• Distillates, including heating oil and diesel, increased by 700,000 barrels.

Sources:

• Dow Jones Commodities News via Comtex, December 31, 2008.
• Dow Jones Newswires, Brian Baskin, 201-938-2062, brian.baskin@dowjones.com.