Another Crude Oil Stock Build—Prices Fall
- Price drop on day of inventory increase announcement is first bearish reaction since March 11th.
- One hundred million barrels have been added to crude oil supply since New Year.
- Refinery use tops 90 per cent.
- Natural gas price breaks support.
Table covers crude oil and principal products. Other products, including residual fuel oil and “other oils” are not shown, and changes in the stocks of these products are reflected in “Total Petroleum Products.” Statistics Source: Energy Information Administration “Weekly Petroleum Status Report” available at www.eia.doe.gov
The Matrix
The release of petroleum supply data from April 3rd mirrored previous reports but with a twist. Crude oil added 10.9 million barrels to stocks. An important difference, however, was the reaction of price. WTI crude oil, basis May, lost $3.56 at the Wednesday, April 8th close, the largest single-day drop this year and the first time the market reacted negatively to the inventory on the day of data release since March 11th.
Crude oil inventories in the United States reached 482 million barrels during the week ending April 3, 2015. This was an increase of 100 million barrels since the beginning of the year, an expansion of supply of 26.2 per cent.
Inventories of crude oil have risen in every week this year. Since the week ending March 13th, 33.5 million barrels have been added to stocks. Powerhouse doubts that economic laws of supply and demand have been repealed, but counterintuitively, the gain in supply has been accompanied by rising prices. WTI crude oil prices bottomed at $42.03 on March 18 –the date when the March 13th data were released. They then rallied to $54.13 on Tuesday, April 7, 2015.
It is not clear just why prices reacted bearishly this time. WTI’s technical condition was overbought calling for some degree of rebalancing. In addition, refiners have more than thirty days’ supply of crude oil available, a number not seen since 1984. By any measure, there is a lot of crude oil around. The weekly gain was the largest one-week increase since March, 2001. Moreover, the weekly gain was the third 10 million-plus weekly increase this year.
The crude oil market may be ready for a retracement of the recent rally, but some caution is in order. Refinery turnarounds may be ending as utilization has exceeded ninety per cent of capacity. Activity at this level could rapidly eat into stocks. Moreover, demand for petroleum products continues over nineteen million barrels daily. Round number support can be found at $50 per barrel. Lower support is at $47.50.
The direction of crude oil prices is uncertain, increasing the market’s volatility. According to press reports, “prices have moved more than 2% up or down on 42 trading days this year, more than the total number of such moves in any of the past three years.”
Supply/Demand Balances
Supply/demand data in the United States for the week ending April 3, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 14.0 million net barrels during the week ending April 3, 2015.
Draws were reported for ethanol, distillate fuel oil, and residual fuel oil. Stocks of gasoline, K-jet, propane, and other oils saw builds.
Crude oil supplies in the United States increased to 482.4 million barrels, a build of 10.9 million barrels.
Crude oil supplies increased in all PAD Districts but PADD 2 (Midwest), which declined 0.6 million barrels. PADD 1 (East Coast) crude oil stocks grew 2.3 million barrels. This was a 15 per cent weekly gain. Gulf Coast facilities added 7.8 million barrels to storage, increasing regional supply to 236.4 million barrels. PADD 4 (Rockies) stocks increased 0.9 million barrels and PADD 5 (West Coast) added 0.6 million barrels.
Cushing, Oklahoma inventories rose 1.3 million barrels. This puts Cushing storage at 60.2 million barrels. The gain frustrated analysts who expected to see the first decline at Cushing since November, 2014. According to the EIA, working capacity at Cushing is 70.8 million barrels.
Domestic crude oil production increased by 18,000 barrels daily. Daily production for the week ending April 3 was 9.404 million barrels. Crude oil imports averaged 8.217 million barrels per day, a daily increase of 869,000 barrels.
Refineries utilized 90.1 per cent of capacity, an increase of 0.7 percentage points from the previous week.
Crude oil inputs to refineries rose by 201,000 barrels daily; there were 15.929 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 225,000 barrels per day to 16.121 million barrels daily.
Total petroleum product inventories saw an increase of 3.1 million barrels. Gasoline stocks rose 0.8 million barrels.
Total product demand decreased 352,000 thousand barrels daily to 19.123 million barrels.
Demand for gasoline shrank by 824,000 barrels per day to 8.610 million barrels daily.
Distillate fuel oil supply fell 0.3 million barrels. Stocks are 126.9 million barrels. National demand was reported at 4.215 million barrels per day during the report week. This was a weekly increase of 395,000 barrels daily.
Propane stocks rose 0.6 million barrels. There are 58.0 million barrels in storage. Current demand is estimated at 1.161 million barrels per day, up 268,000 barrels daily from the previous report week.
Natural Gas
According to EIA: Storage levels increased by 15 Bcf for the week ending April 3. This marks the second net injection of 2015. [The increase] compares with the five-year average net withdrawal of 2 Bcf for that week and last year’s net withdrawal of 8 Bcf. Working gas inventories for the storage week totaled 1,476 Bcf, 651 Bcf (78.9%) higher than last year at this time and 173 Bcf (10.5%) lower than the five-year (2010-14) average.
The injection was larger than the trade expected. Prices dropped sharply following the release of the data. Technical support was broken at $2.57, opening the way to even lower levels. Next support can be found at $2.17. A significant low was seen at $1.90 in April, 2012. One technical analyst suggests a triangular pattern starting from the $15.78 high in December, 2005 could resolve with a sub-one dollar price.
Futures trading involves significant risk and is not suitable for everyone. Transactions in securities futures, commodity and index futures and options on future markets carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract, meaning that transactions are heavily “leveraged”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the clearing firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. Past performance may not be indicative of future results. This is not an offer to invest in any investment program.Vol. PH 03 NO. 66
Was this memo helpful? We’d like your feedback. Please respond to [email protected] Copyright © 2014 Powerhouse, All rights reserved.
