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Refined Products

Recap:   A surprise build of 3.1 million barrels in U.S. crude oil stocks pulled the plug on rising oil prices, sending November WTI below unchanged. The release of the numbers severed early gains by 1.4 percent, and a late session sell-off brought about a new low. November WTI settled at $47.81, down 72 cents. Brent slipped 59 cents to settle at $51.33.   

An examination of total open interest and the settlement of the spot price in futures, indicate that new length has entered the market as prices moved higher. Since October 1st, total open interest has increased 3.2 percent. Wednesday's open interest, which comes out on Thursday, will give a clearer picture as to whether or not new longs liquidated as prices sold off.

RBOB for November delivery slipped 4.62 cents to settle at $1.3900. November heating oil dropped 3.62 cents to settle at $1.5796.

Fundamental News: Platts reported that Iran is targeting an additional 2 million bpd of crude production capacity in the years ahead from the 50-plus upstream projects it will introduce to potential international investors in Tehran in November and in London in February.  A top Iranian official also stated that Iran is also targeting an additional 7 trillion cubic feet of gas from the projects.  He however did not say how long it would take to achieve the extra capacity.

Mexico's Deputy Oil Minister Francisco Barnes de Castro said that they are willing to take part in OPEC's technical discussions in October.  However they would not collaborate in reducing oil production. 

In an effort to save money, rig owners are cannibalizing parts such as motors and drill pipe from idled rigs to fix 800 active ones in the US.  In good times, they would buy new equipment from companies like Premium Oilfield Technologies or National Oilwell Varco Inc when parts fail.  However they now pick over any of about 1,100 rigs idled by the downturn in the market.  Cannibalization is so widespread in this downturn that services companies and others say even after oil prices recover it will take six months or more to see a significant rebound in drilling and production.  NOV has stated that so many rigs are idled that firms could cannibalize drill pipe for up to a year before placing new orders. 

Oil production costs in Venezuela have declined to $7-$8/barrel due to a local currency devaluation.  The head of PDVSA's corporate finance department, Domingo Garcia, said the country had a total of $70 billion worth of new projects, including $5 billion with Chinese companies to sustain and increase oil production.

TransCanada Corp launched a binding open season for Cushing Marketlink.  The anticipated commencement date for crude oil transportation service is early first quarter 2016.

According to the EIA, refinery utilization in the US Midwest region fell by 7.8% to 79.2% of capacity last week.  It fell to the lowest level since May 2013.  Total US refinery utilization fell by 2.3% points to 87.5% of capacity. 

Platts reported that Libya's oil production totaled 426,000 bpd as of Tuesday, up 46,000 bpd from a couple of weeks ago.  Despite the short term increase, Libya's production remains below one-third of its 1.5 million bpd capacity due to technical difficulties at oil fields operated by NOC subsidiary Agoco.  In addition, the ports of Ras Lanuf and Es Sider remain closed as tribal leaders prevent flows from the Sharara and Elephant fields from reaching the northwestern Libya export terminals.  There is also uncertainty over who will eventually actually run the country. 

Early Market Call - as of 9:00 AM EDT
WTI - Nov $47.81, up 45 cents
RBOB - Nov  $1.4362, up 33 points
ULSD - Nov $1.6115, down 96 points

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Natural Gas

Wednesday, October 7th, saw the front-month NYMEX Natural Gas Futures Contracts open at $2.510, four cents above Tuesday’s closing price of $2.470.  Climbing to record the intraday high of $2.531 by 9:30AM, the contract traded within a two-cent range for the next sixty minutes before retreating.  Cascading down to the intraday low of $2.479 at 11:50AM, prices then reversed direction and rose through the early afternoon. Climbing just above $2.515 near 1:30PM, November fell for the balance of the day to close slightly higher on Wednesday at $2.474.

The EIA Natural Gas Storage Report is due out at 10:30AM today.  The report is expected to show a 98 BCF injection to storage for the week ended October 2nd.  This compares to a 106 BCF injection at this time last year and a five-year average injection amount of 86 BCF.

This morning in Globex, WTI Crude was up 35 cents; Natural Gas was up a penny; and, Heating Oil and Gasoline were up slightly.

Cash prices were higher in New York and lower in New England.

Natural Gas Glossary

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