Petroleum Product Futures Get Soft
- Facilities fully recovered from autumn hurricanes
- Product demand is falling seasonally
- Waiting on year-end tax selling
- Natural gas breaks support
The Matrix
December is typically a soft month for petroleum product futures. This year appears to be no different. ULSD’s high price for December was reached on the first day of the month at $1.96. One week later, diesel had lost a dime.
Gasoline has a similar story. Prices fell eleven cents in December’s first week, testing $1.66. Gasoline’s decline, however, began earlier. Prices topped at $1.8150 on November 8, 2017.
The drop in prices reflected several factors in play this year. Markets only now are fully recovered from the depredations of three consecutive and very significant weather events. Product demand suffered in this period. Gasoline has experienced a sharp drop in usage. And distillate fuel oil demand followed suite.
Products Supplied: Motor Gasoline
Total product stocks fell 55 million barrels during the past twelve months. Notable among these declines was 27.3 million barrels of distillate fuel oil and 24.8 million barrels of propane. Gasoline stocks lost only 8.7 million barrels. These declines in supply were reflected in price rallies in oils. ULSD prices continued a rally from $1.2177 in February, 2016 to its recent high.
Propane prices rallied too. They bottomed at $0.38 in January, 2016, topping in November 2017 around $0.98.
Futures Prices: Propane Q4-2015 to Q4-2017
Powerhouse has discussed here that one principal reason for draining supply has been the export trade. The loss of supply to export markets has become ever more significant in recent years.
During the week ending December 1, 2017, the United States exported 6.4 million barrels daily of all oils. Crude exports ran 1.4 million barrels daily and products, 5 million barrels per day.
But even a new destination for American oil has a seasonal component. The current sell-off in products is one such seasonal feature. Another is the year-end ad valorum tax imposed on petroleum. This tax is imposed by Texas and Louisiana. One response is the sale of product in tank to avoid the tax. In many years, these sales push prices substantially lower.
Supply/Demand Balances
Supply/demand data in the United States for the week ending December 01, 2017 were released by the Energy Information Administration.
Total commercial stocks of petroleum fell 2.5 million barrels during the week ending December 01, 2017.
Builds were reported in stocks of gasoline, fuel ethanol, distillates, and propane. Draws were reported in stocks of K-jet fuel, residual fuel oil, and other oils.
Commercial crude oil supplies in the United States decreased to 448.1 million barrels, a draw of 5.6 million barrels.
Crude oil supplies decreased in four of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks fell 0.9 million barrels, PADD 2 (Midwest) stocks declined 3.4 million barrels, PADD 3 (Gulf Coast) stocks retreated 1.1 million barrels, and PADD 5 (West Coast) stocks decreased 1.1 million barrels. PAD District 4 (Rockies) stocks increased 1.0 million barrels.
Cushing, Oklahoma inventories decreased 2.7 million barrels from the previous report week to 55.6 million barrels.
Domestic crude oil production increased 25,000 barrels daily to 9.707 million barrels per day from the previous report week.
Crude oil imports averaged 7.202 million barrels per day, a daily decrease of 127,000 barrels. Exports fell 54,000 barrels daily to 1.358 million barrels per day.
Refineries used 93.8 per cent of capacity, an increase of 1.2 percentage points from the previous report week.
Crude oil inputs to refineries increased 192,000 barrels daily; there were 17.195 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 237,000 barrels daily to 17.428 million barrels daily.
Total petroleum product inventories saw an increase of 3.1 million barrels from the previous report week.
Gasoline stocks rose 6.8 million barrels from the previous report week; total stocks are 220.9 million barrels.
Demand for gasoline increased 171,000 barrels per day to 8.895 million barrels daily.
Total product demand increased 284,000 barrels daily to 19.948 million barrels per day.
Distillate fuel oil supply rose 1.7 million barrels from the previous report week to 129.4 million barrels. National distillate demand was reported at 3.737 million barrels per day during the report week. This was a weekly decrease of 145,000 barrels daily.
Propane stocks increased 1.3 million barrels from the previous report week to 74.5 million barrels. Current demand is estimated at 1.286 million barrels per day, an increase of 179,000 barrels daily from the previous report week.
Natural Gas
According to the Energy Information Administration:
Net injections into storage totaled 2 Bcf, compared with the five-year (2012–16) average net withdrawal of 69 Bcf and last year’s net withdrawals of 43 Bcf during the same week. Last week was the first time since December 7, 2012, that working gas stocks posted a net increase on a national level in December.
In both of these instances, net injections in the South Central region more than offset net withdrawals in the East and Midwest regions. Relatively mild temperatures resulted in smaller-than-average net withdrawals and decreased natural gas consumption, primarily in the residential/commercial sector. Working gas stocks totaled 3,695 Bcf, which is 36 Bcf less than the five-year average and 264 Bcf less than last year at this time.
Subsequent to release of the EIA data, natural gas futures broke support at $2.79. Next support is at $2.723. More significant support is at $2.50. And most recently, Baker Hughes reported natural gas rigs unchanged at 180 for the week ending December 8.
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