Markets Have an Inside Week
- Oil prices paused in its downward push
- OPEC is facing serious fissures
- The United States is developing a very long inventory position
- Natural gas production set a new record of 69.7 Bcf/d last week
The Matrix
The WTI futures market carved out an “inside week” for the week ending October 24th. That is to say, the entire weekly price range for WTI fell within the price range of the previous week. “An inside week is often used to signal indecision because neither the bulls nor the bears are able to send the price beyond the range of the previous week. If an inside day is found at the end of a prolonged downtrend and is located near a level of support, it can be used to signal a bullish shift in trend.” Similar patterns were seen in ULSD and RBOB futures.
It is not possible to determine if the bottom is in and market information is not much help either. In particular, fissures are developing within OPEC. Changes in the global picture of crude oil supply do not favor OPEC and some experts think that OPEC’s dominance is over.
The availability of non-OPEC oil has established new competition from the United States and Russia. This has had the effect of lowering prices because of supply. It also put strains on OPEC nations that rely on petroleum revenue to meet national budgets. And the Arab Spring forced several OPEC members to increase domestic budgets to satisfy the social demand of their populations. An $80 crude oil price may not suffice to meet this need.
Growth in production in the United States is a source of concern to OPEC. Saudi Arabia, Iran and Iraq are producing at high rates to pressure US producers to slow their rate of output. Thus far, it has not worked.
Supply/Demand Balances
Supply/demand data in the United States for the week ending October 17, 2014 were released by the Energy Information Administration.
Total commercial stocks of petroleum rose, adding 4.4 million net barrels to inventories. Increases were reported in supplies of crude oil, which rose 7.1 million barrels. This was the fourth consecutive weekly increase in inventories. More than twenty one million barrels have been added to crude oil stocks since the week ending September 26. This reflects refining capacity being taken off line for turnaround. Some observers believe that turnarounds have reached a peak with the report week’s data.
Distillate fuel oil stocks added one million barrels to supply during the week. Year-on-year, distillate stocks remain even with last year, alleviating some concerns that inventory was lagging. And while stocks have not grown significantly, they are now moving above the lower end of the five year range, one of the few times this has happened this year.
All other petroleum product stocks fell during the report week. RBOB gasoline fell 1.3 million barrels. Other Oils lost 1.6 million barrels.
Overall, however, the United States is developing a very long inventory position. As shown on the chart below, national stocks are higher than the highest level of the past five years.
Commercial crude oil stocks were 377.7 million barrels, reflecting the weekly gain of 7.1 million barrels during the report week. The gain was largely on the Gulf Coast, where 5.3 million barrels were added to inventory. The Midwest added 1.7 million barrels to inventories. Cushing, OK stocks gained 1.0 million barrels, now at 20.8 million barrels.
Stocks are lagging last year’s level by only 2.1 million barrels. Last year at this time, stocks were 4.7 million barrels higher than in October, 2012, the year before.
Crude oil imports were 7.5 million barrels daily during the report week, lower than the previous week by 263,000 barrels. They were 179,000 barrels less than last year. They lag by 5.8 per cent from the same four-week period last year.
U.S. crude oil production was 8.934 million barrels a day according to the latest report. A modest drop was reported for Alaska. The Lower 48 states produced 8.443 million barrels daily.
Crude oil inputs to refineries were lower by 0.113 million barrels daily, running at 15.2 million barrels per day during the report week. Refinery utilization fell to 86.7 per cent of capacity. This was a weekly decline of 1.4 percentage points. According to one analyst, “last week’s utilization rate is expected to be the bottom and incidentally coincides with the same week a year ago when autumn refinery maintenance peaked.”
Gasoline production rose to 9.3 million barrels per day, a marginal weekly increase. Last year at this time, production was 9.130 million barrels per day.
Gasoline demand was lower for the week at 8.8 million barrels per day. The decline in gasoline stocks of 1.3 million barrels brought inventories to 204.4 million barrels. Reductions were seen mainly in PADD II, where supplies fell 1.3 million barrels during the report week.
Distillate fuel oil supplies increased 1.1 million barrels during the report week. Gains were seen on the Gulf Coast, where 2.8 million barrels were added to supply and on the East Coast (+0.7 million barrels.) Declines in the Midwest and on the West Coast were offsetting.
Distillate fuel oil demand lost 401,000 barrels daily, now at 3.3 million barrels per day. Refinery production of distillate fuels increased slightly to 4.604 million barrels daily.
Propane inventories rose 0.2 million barrels in the U.S. Total stocks are 81.6 million barrels, 15.6 million barrels more than last year at this time. Gulf Coast stocks are 43.7 million barrels, up 0.3 million barrels for the week. Midwest stocks were down 0.2 million barrels at 27.9 million barrels.
Natural Gas
According to the EIA: Net injection moved storage to within 9% of the 5-year average. The net injection reported for the week ending October 17 was 94 Bcf, 24 Bcf larger than the five-year average net injection of 70 Bcf and 8 Bcf larger than last year’s net injection of 86 Bcf. Working gas inventories totaled 3,393 Bcf, 336 Bcf (9.0%) less than last year at this time and 338 Bcf (9.1%) below the five-year (2009-13) average.
Last winter ended with storage lower than any previous year since 2003. Nonetheless, production of natural gas has been hitting records, helping to overcome the deficit. The Energy Information Administration (EIA) forecasts that there will be 3,532 billion cubic feet (Bcf) in storage by October 31.
There has been robust gas production all year, with several production records being set in 2014. One analyst, Bentek Energy, reported new highs accomplished last week— a single-day record of 70.5 Bcf/d on Sunday October 19 and a new weekly record average of 69.7 Bcf/d. The month-to-date production average is now 69.7 Bcf/d, 5.2 Bcf/d higher than October 2013.
Injections are on course to be the largest seasonal refill on record. So far in the injection season (April through October), more than 2,570 Bcf has been placed into storage. EIA is forecasting an additional 139 Bcf will be injected before the end of the traditional injection season.
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