Distillate Fuel Oil Prices Break Support
This week:
- Distillate fuel oil prices moved below $2.80, but may have bottomed at $2.72.
- Brent crude oil shows strong carry, a bearish sign.
- Total stocks of petroleum added 9.5 million barrels to inventory according to the EIA.
- Natural gas supplies remain below the lowest level of the past five years.
Chairman, Powerhouse
The Matrix
Distillate fuel oil prices broke support at $2.80 for the first time since June, 2013. The decline continued a slide that has gradually eroded fuel oil prices throughout most of 2014. As noted many times, distillate fuel oil stocks in the United States have remained below the low of the range of the past five years. This remains so despite the 4.1 increase in distillate fuel oil stocks reported this week. Tight supplies are bullish, but markets have not yet responded positively.
Brent crude oil moved below $100, considered key support. This reflected a growing belief that hostilities in eastern Ukraine may be ending. Moreover, Libyan exports are apparently moving as well. Output reached 740,000 barrels daily according to the Libyan National Oil Company.
Brent crude oil prices for nearby months are substantially lower than for more distant months as shown on the chart above. This is called “carry” (or “contango”) in the market. It is a bearish indicator. Foreign storage of crude oil has been expanding. One estimate put floating storage at fifty million barrels, split between South Africa and Asia. This is the largest quantity since 2009 when storage went to 200 million barrels as demand collapsed. It casts a bearish tone on prices.
Technical analysis of petroleum price charts points lower as well. Elliott Wave counts for WTI crude oil put nearby support around $92.50 and, after a relief rally, further erosion into the high ‘80s.
Distillates may be an exception to the bearish pattern. According to this analysis a final, fifth Elliott Wave may have been counted, consistent with seasonally bullish requirements.
Supply/Demand Balances
Supply/demand data in the United States for the week ending September 5, 2014 were released by the Energy Information Administration.
Total commercial stocks of petroleum rose, adding 9.5 million net barrels during that week. Increases were reported in supplies of distillate fuel oil (+4.1 million barrels) gasoline (+2.4 million barrels) and K-jet (+2.0 million barrels.) Inventories of crude oil fell 1.0 million barrels. The draw continues the reduction of supplies that began in early May when crude oil stocks were at 397.6 million barrels.
Commercial crude oil stocks were 358.6 million barrels during the report week. Stocks were 1.4 million barrels lower than last year at that time. The high intensity of refinery demand for crude oil was reflected in a utilization rate of 93.9 per cent, a weekly gain of 0.6 percentage points. Facilities in the Rockies ran at rates in excess of 100 per cent.
East Coast facilities operated at 81.0 per cent of capacity—a decline which continued the reduction of almost five percentage points reported in the previous week’s story. Delivery of crude supplies by rail to Mid-Atlantic facilities has been slowed because of track maintenance and a shortage of crews. This has is causing some Northeast refiners to cut refinery utilization rates, and this logistics issue may be extended well into fall, according to press reports.
Total supplies of crude oil and products stand at 1.134 billion barrels of oil. Current supply of all oils has vaulted ahead of last year by 8.6 million barrels.
Most of the decline in crude oil stocks occurred on the West Coast where stocks fell 1.8 million barrels. Gulf Coast inventories were drained by 0.5 million barrels. Stocks at Cushing, OK increased by 0.1 million barrels, moving to 20.4 million barrels.
Crude oil imports were slightly lower at 7.6 million barrels daily during the report week.. Imports are down 6.8 per cent from the same four-week period last year.
U.S. crude oil production held 8.6 million barrels a day according to the latest report.
Crude oil inputs to refineries fell marginally, running at 16.3 million barrels per day during the report week. Gulf Coast facilities ran 8.5 million barrels of crude oil daily at that time.
Gasoline production fell to 8.965 million barrels per day. There was a sharp drop in demand to 8.6 million barrels per day. This more than erased the unusually high demand rate reported last week.
There was an increase in gasoline stocks of 2.4 million barrels to 212.4 million barrels. Increases were seen in every PADD, with the Midwest adding 1.0 million barrels during the report week.
Distillate fuel oil supplies built 4.1 million barrels during the report week. The gains were seen in the Midwest and on the East and West Coasts. Supplies in the U.S. remain below last year’s levels. Distillate stocks lag last year’s level by 4.7 million barrels.
Distillate fuel oil demand fell about a half-million barrels daily to 4.3 million barrels per day. Refinery production of distillate fuels remained at 5.1 million barrels daily.
Propane inventories declined by 0.1million barrels in the U.S. Total stocks were 76.0 million barrels, 11.5 million barrels more than last year at this time. Gulf Coast stocks were 41.0 million barrels, down 0.6 million barrels for the week. Midwest stocks were up 0.6 million barrels.
Natural Gas
According to the EIA:.Net injections into storage were much higher than average and higher than expectations. The net injection reported for the week ending September 5 was 92 Bcf, 32 Bcf larger than the five-year average net injection of 60 Bcf and 28 Bcf larger than last year’s net injection of 64 Bcf. [Expected injections were 84 Bcf.] Working gas inventories totaled 2,801 Bcf, 443 Bcf (13.7%) less than last year at this time and 463 Bcf (14.2%) below the five-year (2009-13) average.
Additions to storage for the total injection period starting during the week ending April 4 have reached 1.979 Tcf. Working natural gas in underground storage remains below the lowest level of the past five years at this point in the injection season. For the past five years, comparable injections averaged 1.450 Tcf. There are eight weeks left in the traditional injection period. Additions to stocks will have to average 131 Bcf weekly to match the five-year average peak injection.
The unexpectedly high injection level pushed prices lower. The recent weather-expectation- induced rally brought prices to $4.016 basis October futures. The EIA report brought values to $3.84. Next support is $3.72.
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