Crude Price Talk Turns Bullish
- OPEC members talk up an “extraordinary” meeting
- Production data are bearish
- Shale production in U.S. now more profitable at lower prices
- Natural gas prices break resistance at $3.00
The Matrix
Trade talk has turned bullish for crude oil prices. Venezuela in particular has been talking up an OPEC production agreement. And a suggestion from Algeria’s Energy Minister that an “extraordinary” meeting might follow an informal get-together in Algiers added to the bullish atmosphere.
Reality, however, seems to be different.
Libya dispatched a tanker with crude oil for Italy from the port of Ras Lanuf. This was reportedly the first export since late 2014. This could portend a larger role for Libyan oil in the global mix. Conflicts among various factions in the country have cut output to 200,000 barrels daily. Before the overthrow of Gaddafi, the country produced 1.6 million barrels per day. A return to that level would clearly weigh on prices.
OPEC’s actual production during July and August rose 500,000 barrels daily. This reflected record Saudi output. Other sources of higher production were Iraq, Iran and Kuwait. Improvements in the Nigerian situation also argue against the bulls.
Perhaps more important are developments in the United States. A recent review of activities in the Permian basin by a major bank emphasized the growing role of efficiency. “Given the advancements in drilling and completion technology and cost reductions, most would concur that Permian returns are now better at $50/Bbl than at $100/Bbl just a few years ago.” The Permian produces around two million barrels per day according to the EIA.
It’s never too early to talk about winter weather and the 2017 Farmers’ Almanac has jumped right in. “Exceptionally cold, if not downright frigid weather will predominate over parts of the Northern Plains, Great Lakes, Midwest, Ohio Valley, the Middle Atlantic, Northeast, and New England this winter. The Farmers’ Almanac’s long-range weather predictions also suggest shots of very cold weather will periodically reach as far south as Florida and the Gulf Coast. In contrast, milder-than-normal temperatures will prevail over the Western States.”
Supply/Demand Balances
Supply/demand data in the United States for the week ending September 16, 2016 were released by the Energy Information Administration.
Total commercial stocks of petroleum decreased 6.0 million net barrels during the week ending September 16, 2016.
Draws were reported in stocks of gasoline, fuel ethanol, and K-jet fuel. Builds were reported in stocks of distillates, residual fuel oil, propane, and other oils.
Commercial crude oil supplies in the United States decreased to 504.6 million barrels, a draw of 6.2 million barrels.
Crude oil supplies decreased in four of the five PAD Districts. PADD 2 (Midwest) crude oil stocks declined 1.7 million barrels, PADD 3 (Gulf Coast) stocks fell 3.7 million barrels, PADD 4 (Rockies) decreased 0.4 million barrels, and PADD 5 (West Coast) stocks experienced a draw of 0.6 million barrels. PAD District 1 (East Coast) crude oil stocks increased 300,000 barrels.
Cushing, Oklahoma inventories increased 500,000 barrels to 62.7 million barrels.
Domestic crude oil production increased 19,000 barrels daily to 8.512 million barrels per day.
Crude oil imports averaged 8.309 million barrels per day, a daily increase of 247,000 barrels. Exports rose 170,000 barrels daily to 588,000 barrels per day.
Refineries used 92.0 per cent of capacity, a decrease of 0.9 percentage points from the previous report week.
Crude oil inputs to refineries decreased 143,000 barrels daily; there were 16.587 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 162,000 barrels daily to 16.964 million barrels daily.
Total petroleum product inventories saw an increase of 0.2 million barrels from the previous report week.
Gasoline stocks decreased 3.2 million barrels; total stocks are 225.2 million barrels.
Demand for gasoline increased 244,000 barrels per day to 9.650 million barrels daily.
Total product demand decreased 789,000 barrels daily to 19.431 million barrels per day.
Distillate fuel oil supply increased 2.2 million barrels; total stocks are 165.0 million barrels. National distillate demand was reported at 3.431 million barrels per day during the report week. This was a weekly increase of 155,000 barrels daily.
Propane stocks increased 0.7 million barrels to 101.7 million barrels. Current demand is estimated at 675,000 barrels per day, a decrease of 464,000 barrels daily from the previous report week.
Natural Gas
According to the Energy Information Administration:
Injections to storage continue at slower-than-normal rate.
Net injections into storage totaled 52 Bcf, compared with the five-year (2011–15) average net injection of 83 Bcf and last year’s net injections of 96 Bcf during the same week. Working gas stocks total 3,551 Bcf, 268 Bcf above the five-year average and 140 Bcf above last year at this time. When the refill season began on April 1, working gas stocks were 874 Bcf above the five-year average.
Natural gas futures prices broke above $3.00 on September 20. This was the first close over $3.00 since mid-May. Importantly, the rally was accompanied by rising open interest and rising volume. This is a bullish sigh. Prices have since moved slightly lower. Nonetheless, breaking this level invites the possibility of a further advance. Further resistance can be found on a weekly chart where there is a gap between $3.35 and $3.44 late last December.
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