Tuesday was the first down day in five days for crude and the November contract fell -$2.76 to $106.60. That is a long way from the touch of $130 on Monday and any reasonable trader would have expected it to give back some of Monday's gains.
There was no specific reason for the decline and the chart action suggests traders are waiting for the Wednesday inventory report for direction. Inventories are expected to be down sharply as a result of the hurricanes.
The Minerals Management Service reported that nearly 1 million barrels per day of gulf capacity was still offline from the hurricanes. Every day that passes means inventory levels decline further. There are still nine refineries shot down in Texas and Louisiana with a capacity of 2.3 mbpd or 13% of U.S. refining capacity. This drop in refinery output is a counter balance to the drop in crude supplies and could prevent a big drop in those inventories. Since the shutdown began before the hurricane over 41 million barrels of normal production have not been refined. That includes 19 million barrels of gasoline and 13 million barrels of distillate fuels. Traders will be very focused on the gasoline inventory number on Wednesday.
Gasoline prices soared in the southeast as shortages from refinery outages caused many stations to run dry. In Nashville about 70% of stations were out of gas. Analysts believe the shortage could continue for another ten days.
Mexican crude production slid in August to a 13-year low of 2.76 million barrels per day. The drop in production is the result of a 50% decline in output from Cantarell, Mexico's largest field, since it peaked in late 2003. Production is down -32% over just the last twelve months. August production was the lowest since November 1995.