OPEC Yields to Market Pricing
- U.S. crude oil production approaches 1970 record of 9.6 million barrels per day
- OPEC producers seek diversification
- Renewable share of consumption grows
- Natural gas storage exceeds five-year average
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
OPEC will continue its strategy of maximum output, producing about one million barrels daily more than its official ceiling. The OPEC decision can be seen as little more than a side show. OPEC’s market power is waning.
The world of crude oil has turned upside down in the past year. Muscular production in the United States, an OPEC decision to meet market prices and defend market share like any other market participant, increasing likelihood of renewed crude oil exports from Iran and expansion in Iraqi output lead to the inescapable conclusion that OPEC’s pricing power and geopolitical influence have peaked.
The unimaginable has become the reality. Crude oil supply has become dispersed with the U.S. and Russia adding materially to global totals. And lower prices have spurred innovation, rendering statistics like the U.S. rig count anachronistic.
Saudi Arabia itself may have come to terms with the changing landscape. It has become a major force in refining. It participates in more than five million barrels daily of global refining capacity providing an outlet for its crude oil irrespective of market movement.
Other OPEC members have sought diversification as well. Kuwait and the UAE have refining assets and are gaining trading skills. Each of them has about one million barrels daily of refining.
Another challenge to OPEC’s position as the preeminent oil marketer is growth in renewables. The U.S. Energy Information Administration (EIA) estimates that about 11% of world marketed energy consumption is from renewable energy sources (biofuels, biomass, geothermal, hydropower, solar and wind) with a projection for 15% by 2040.
Supply/Demand Balances
Supply/demand data in the United States for the week ending May 29, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 7.4 million net barrels during the week ending May 29, 2015.
Builds were reported in stocks of distillate fuel oil, residual fuel, propane, and other oils. RBOB stocks experienced a small decline. Fuel ethanol and K-jet fuel stocks were unchanged.
Crude oil supplies in the United States decreased to 477.4 million barrels, a draw of 1.9 million barrels from storage. This was the 5th consecutive decline in stocks of crude oil this year.
Crude oil supplies decreased in three of the five PAD Districts. PADD 2 (Midwest) crude oil stocks experienced a decline of 1.6 million barrels. PADD 3 (Gulf Coast) crude oil stocks declined 3.6 million barrels.
PADD 4 (Rockies) stocks fell 0.2 million barrels. PADD 1 (East Coast) stocks rose 0.4 million barrels and PAD District 5 (West Coast) storage added 2.9 million barrels.
Cushing, Oklahoma inventories fell to 59.0 million barrels, a decrease of 1.0 million barrels.
Domestic crude oil production increased 20,000 barrels daily to 9.586 million barrels per day. This increase in production came from Alaska; the lower 48 States’ crude oil production was unchanged from the previous report week. U.S. crude producers have remained strong – production levels reached yet a new recent high last week, according to government data.
Crude oil imports averaged 7.373 million barrels per day, a daily increase of 677,000 barrels.
Refineries used 93.2 percent of capacity, a decrease of 0.4 percentage points from the previous week.
Crude oil inputs to refineries fell 43,000 barrels daily; there were 16.407 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 64,000 barrels per day to 16.662 million barrels daily.
Total petroleum product inventories saw an increase of 9.3 million barrels. Gasoline stocks declined 0.3 million barrels.
Total product demand declined 1.102 million barrels daily to 18.878 million barrels per day.
Demand for gasoline fell 756,000 barrels per day to 8.978 million barrels daily.
Distillate fuel oil supply gained 3.8 million barrels. Stocks are 132.6 million barrels. National demand was reported at 3.523 million barrels per day during the report week. This was a weekly decrease of 432,000 barrels daily.
Propane added 3.8 million barrels to supply. There are 77.0 million barrels in storage. Current demand is estimated at 0.702 million barrels per day, a decrease of 282,000 barrels daily from the previous report week.
Estimates of petroleum exports are revised monthly. Changes for the week ending May 22 were released during the week ending May 29th. Total outflow remained elevated at 3.8 million barrels daily, slightly lower than in the prior week. The United States sent out 1 million barrels per day of distillate fuel oil, more than thirty per cent of total product exports. Exports of other oils, which include kerosene, were nearly as large at 913,000 barrels per day.
Natural Gas
According to the EIA: With a net injection of 132 billion cubic feet (Bcf) for the week ending May 29, working natural gas in storage surpassed the five-year (2010-14) average level. This was the largest implied weekly net injection ever reported in EIA’s Weekly Natural Gas Storage Report, raising stocks to 2,233 Bcf, 22 Bcf (1%) above the five-year average and 751 Bcf (51%) above this same week last year. Because EIA does not survey storage operators directly on the flows in and out of their facilities, the change in storage levels, week over week, is considered an implied net flow.
Natural gas prices are pushing lower. High production and expanding underground storage have proven to be powerful bearish forces. Moreover, mild temperatures in the West and power from nuclear plants at near-record levels are cutting into natural gas demand.
Another weather phenomenon with potentially important implications for natural gas use is the incipient El Nino which has been strengthening in recent weeks. The El Nino could be expected to keep the South Central states cool, inhibiting demand. Texas, already impacted by rain, consumes about seventeen per cent of domestic power. Natural gas consumption is especially at risk. Power consumption was coming in 7 percent lower than projected on the main state grid, according to the Electric Reliability Council of Texas Inc. reported on May 29, 2015.
A Statistical Note
EIA has under-reported marketed natural gas production by about 1.5 billion cubic feet per day (Bcf/d) for the first three months of 2015. Dry gas production for the first quarter of 2015 is now estimated to be approximately 73.5 Bcf/d. (Marketed production is calculated as gross production less non-hydrocarbon gases, vented and flared gas, and re-injected gas.) Corrected data will be reflected in the June and subsequent Natural Gas Monthlys.
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 04 NO. 22
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