With record inventories nearing full capacity, Phillips 66 dumped crude in unusual front-month deals. For its efforts, Phillips 66 sold crude at spreads yielding negative $2.50 and $2.75 a barrel.
U.S. refiner Phillips 66 dumped crude for immediate delivery in Cushing, Oklahoma on Wednesday, sparking speculation that the move reflected advance warning of looming output cuts amid sluggish winter demand and record inventories.
The unusual sales of excess oil added pressure to the March/April WTI futures spread, with the front-month discount widening to as much as $2.37 a barrel on Wednesday, the most since November.
It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed.
The so-called cash roll, which allows traders to roll long positions forward, typically trades in the three days following the expiry of the prompt futures contract. The trading period for February-March contracts concluded almost three weeks ago.
U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week – just 8 million barrels shy of its theoretical limit – stoking concerns that tanks may overflow in coming weeks.
One trader described the market as a “bloodbath.”
If Phillips 66 does cut refinery runs, it would be the third refiner to capitulate amid record gasoline inventories and negative margins.
Earlier on Wednesday, sources said Delta Air Lines’ Monroe Energy refinery near Philadelphia had decided to cut output by 10 percent at its 185,000 barrels per day (bpd) refinery due to economic reasons.
On Tuesday, sources said that Valero Energy Corp was planning to cut gasoline production at its 180,000 bpd Memphis, Tennessee, refinery by about 25 percent.
You need somewhere to put the crude if you’re cutting runs.
Front Month Discount
The March-April spread was negative $2.54 as of 2016-02-11 12:34 AM US Central.
Phillips dumped oil in “unusual sales of excess oil“. For its efforts, Phillips received spreads of negative $2.50 and $2.75 a barrel.
As I type, oil broke the $27 price suppot, falling as low as $26.72 a barrel.
Mike “Mish” Shedlock