Why Bank Of America Remains Cautious On U.S. Refiners
Analysts at Bank Of America Merril Lynch consistently monitor oil inventory. This week they rolled out a report explaining why they remain cautious on U.S. refiners:
Another surge in oil stocks led to a drop in benchmark oil prices of similar proportions. Beyond the hard facts, the analysts note that “3/4ths of the crude build was in PADD III and was largely a result of rising crude imports (+600kbd) ahead of a likely rebound in Gulf Coast refining runs.” In addition, the U.S. Energy Information Administration revised its monthly estimate of U.S. production for January last week. They now model a decline of 135,000 bpd from December 2014, compared to more than 54,000 bpd implied by the cumulative weekly data: “should a similar trend emerge in Feb-Apr, EIA crude stocks may prove overstated.”
Regardless, WTI-Brent spread fell to around $5, from a recent high of $13, “removing a critical source of margin support that had coincided with seasonally low refining runs exacerbated by maintenance and the recent strike,” the report explained. However, there is one data point that strikes analysts the most: Gasoline inventories remain at record seasonal levels, with record demand cover and peak refining runs still ahead.
“With crack spreads falling hard from recent peaks we believe risks to consensus earnings that had chased short term margins higher are at risk.”
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