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September 21, 2006

Energy refinery margins fall; stock ratings cut, Thurs., Sept. 21, 2006, 8:50 AM

Something exploded in the U.S. gasoline market in early August. It remains, what CNBC this morning calls "the hottest topic around office water coolers". From the outside looking in, I called it a conspiracy, but a more knowledgeable reader disagrees.

"Bill, The "volatility" in gasoline has to do with regulatory changes. The US can't have MTBE in the mix because it is a pollutant. Each state/region created their own blend that used other oxygenators in different ratios.

This change took effect in May and inventory of the old product was cleaned out of storage and new formulations had to be refined. (In fact, this caused quite a stir on the NYMEX in March and April as financial buyers bought contract with MTBE mix gasoline that nobody could buy and use in the US.)

All summer there were issues with bottlenecks and distribution of the right mix to the right region. This also was happening on the tail of the hurricanes making things worse.

On October 1st, everybody shifts to the winter gasoline mix which is the same in all states/regions in the US. That is the real reason gasoline prices shot up in the summer and fell like a rock this fall. If there was a conspiracy, it was lousy regulation by politicians. The attached report addresses this."

Download Citigroup Sept 5 Reort on Refiners.

I welcome informed commentary like the reader and the Citigroup report gave us here.

These interactive charts show the extreme trading in the major U.S. refinery stocks.

Posted by Posted by Bill Cara on September 21, 2006 08:50:18 AM | Category: 10 Energy

Discourse

It is pecisely like the information provided in this report, that I daily check the Bill Cara site. Thanks Bill and all for the information.

Posted by: AlaBill [TypeKey Profile Page] at September 21, 2006 9:24 AM [link]

The informed reader's hypothesis (which I don't disagree with) only addresses gasoline. It does not explain the sharp decline in the other energy commodities.

Posted by: rmasand [TypeKey Profile Page] at September 21, 2006 9:53 PM [link]

I think it was here that the drop of WTI under Brent was mentioned.....Isn't there something fishy about sweet trading under sour?

Now that the hedge fund handed over their book to ms, can we say those positions will be "terminated with extreme prejudice".......$9 billion down to about 150 bucks

Posted by: vonmallorca [TypeKey Profile Page] at September 22, 2006 8:21 AM [link]