Crude Oil Prices Threaten $50
- US crude oil production exceeding nine million barrels daily
- US refinery use approaching maximum
- If WTI price breaks $50, no major support until $32.40
- Natural gas withdrawal only 26 Bcf for week ending Friday, Dec. 26, 2014
The Matrix
Notwithstanding a small reduction in U.S. crude oil inventories in the most recent EIA Petroleum Balance Sheet, oil markets have clearly capitulated to the reality of oil prices now likely to be lower for longer. WTI crude oil has moved resolutely lower since last summer when it topped at $107.73. The year 2014, just ended, saw spot crude oil futures break $53.00. This is a loss of almost exactly half their value.
The hope for American energy independence has come close to fruition. Most immediately, domestic production continues to exceed nine million daily, putting the US just below Saudi Arabia and Russia as the third largest global producer of oil. Moreover, production has initially replaced imports, shifting the nexus of geopolitical power westward. The Saudi hope that prices will recover as economic growth encourages demand seems more hollow by the day.
US refineries are operating at increasingly unsustainable rates. They are exposed to accidents and damage and are, in any case near the maximum crude they can use, potentially softening prices. Globally, lower prices for Brent encourage foreign refining. European facilities are competing with the US for export markets in gasoline for example. This is bearish for crude oil prices as well.
Crude oil prices last fell this sharply in 2008. They bottomed at $32.40 in December of that year. The subsequent recovery rested around $52 in April, 2009. The point is if WTI crude oil breaks support at $52, there is no major support before $32.40.
Supply/Demand Balances
Supply/demand data in the United States for the week ending December 26, 2014 were released by the Energy Information Administration.
Total commercial stocks of petroleum rose 2.8 million net barrels during the report week. The largest increases were in gasoline, distillate fuel oil and kero-jet. Crude oil supply fell 1.8 million barrels. Relatively small draws were reported for residual fuel oil and propane. Stocks of other oils dropped 0.8 million barrels.
Crude oil supplies in the United States fell to 385.5 million barrels. Imports fell more than 1.2 million barrels daily during the week, contributing to the reduction.
Stocks of crude oil rose in PAD Districts in the Midwest (+0.3 million barrels) and on the Gulf Coast (+0.5 million barrels). On the West Coast inventories lost 1.6 million barrels of crude.
Cushing, Oklahoma inventories rose to 30.8 million barrels according to the week’s report. This was an increase of 2.0 million barrels for the report week. Stocks at Cushing have been growing since October 3rd when they bottomed at 18.9 million barrels. And as stocks grow on the Gulf Coast, building supplies at Cushing will be bearish for price.
Domestic crude oil production fell slightly to 9.121 million barrels daily. Crude oil imports fell sharply during the week, moving down 1.2 million barrels daily to 7.1 million barrels per day. This reverses the last report’s increase. It confirms the United States’ reduced reliance on foreign crude oil.
Crude oil inputs to refineries rose slightly; there were 16.4 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose to 16.8 million barrels daily. This is reportedly the highest level of refinery activity ever recorded in the United States.
Refinery utilization rose to 94.4 per cent. Facilities on the East Coast had the largest relative change, adding 7.3 percentage points to usage during the report week. Midwest refiners are operating at 97.4 per cent of capacity.
Total petroleum product inventories netted gains of 6.5 million barrels against declines of 3.7 million barrels. Gasoline added 3.0 million barrels to supply. Gains were seen in every PAD District except the West Coast. The East Coast (+0.7million barrels) and Midwest (+2.6 million barrels) had the largest gains.
Demand for gasoline rose 100,000 barrels per day to 9.6 million barrels daily. Supporting that demand, refinery production reached 10.2 million barrels daily.
Distillate fuel oil stocks added to inventory. Stocks were 125.7 million barrels up 1.9 million barrels. National demand declined to 4.2 million barrels per day during the report week, reflecting mild weather.
Propane stocks fell 600,000 barrels. There are 77.2 million barrels in storage. Current demand is estimated at 1.3 million barrels per day.
Natural Gas
According to EIA: Working gas in storage was 3,220 Bcf as of Friday, December 26, 2014, according to EIA estimates. This represents a net decline of 26 Bcf from the previous week. Stocks were 232 Bcf higher than last year at this time and 81 Bcf below the 5-year average of 3,301 Bcf.
Natural gas prices broke support at $3.00 on release of the storage report. As noted, “This price had not been seen since the week ending September 28, 2012. Major support was found at $2.575 in August of that year. This level was established as natural gas prices recovered from a low of $1.927 in April 2012.”
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