Iranian Framework For a Comprehensive Deal Announced
- ULSD futures challenge support at $1.70
- Crude oil stocks continue their build
- Product demand is growing too
- Natural gas prices find support at $2.57
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 trading week ending April 2, 2015 is closing on a soft note. Possibilities of an agreement with Iran on nuclear development and overwhelmingly bearish crude oil statistics combine to push prices lower. In particular, ULSD prices are threating support at $1.6690, a level that has held since March 16th.
On a broader scale, crude oil prices have been in decline for three quarters in a row. Inventory gains in crude oil have become a fixture of supply/demand balances.
Data for the week ending March 27th showed commercial crude oil stocks reached 471.4 million barrels daily. This worked out to being 30.4 days of supply, a level not seen since June 1986. It is now possible to consider the possibility that the high of 34.2 days, seen in February, 1983 is in reach.
Production of crude oil fell for the first time in eight weeks. The decline was so minimal, however, that no analytical significance can be ascribed to it.
Analysts are sharply divided on the next move in prices. There are a few bullish signs. The number of rigs in operation has fallen by half since last year. Capital spending plans among large oil companies have been cut by 10 to 15 per cent.
Bearish fundamentals have not been persuasive for some experts. For the bulls, high inventory levels will be reduced by the return to processing by refineries in turnaround. Moreover, they see demand strength contributing to the bullish view.
Bears believe that any current strength is temporary, including a colder winter and supply disruptions in Libya and Iraq. They see an imbalance of excess supply and seasonally weaker demand as pulling prices lower. They estimate there are about 1.5 million barrels per day more supply than demand.
Supply/Demand Balances
Supply/demand data in the United States for the week ending March 27, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 3.2 million net barrels during the week ending March 27, 2015.
Draws were reported for gasoline, ethanol, K-Jet, and residual fuel oil. Stocks of propane, distillate fuel oil, and other oils saw builds.
Crude oil supplies in the United States increased to 471.4 million barrels, a build of 4.8 million barrels. Crude oil supplies declined 0.4 million barrels in PADD 1 (East Coast) and 0.9 million barrels in PADD 5 (West Coast). Midwest crude oil stocks grew 4.3 million barrels increasing regional supply to 147 million barrels. Gulf Coast facilities saw a build of 1.4 million barrels, and storage in the Rockies rose 0.4 million barrels.
Cushing, Oklahoma inventories rose 2.6 million barrels. This puts Cushing storage at 58.9 million barrels. EIA put working capacity at Cushing at 70.8 million barrels.
Domestic crude oil production decreased by 36,000 barrels daily. This is the first decline in U.S. production in eight weeks. Daily production for the week ending March 27 was 9.386 million barrels. Crude oil imports averaged 7.348 million barrels per day, a daily decrease of 44,000 barrels.
Refineries utilized 89.4 per cent of capacity, an increase of 0.4 percentage points from the previous week.
Crude oil inputs to refineries rose by 198,000 barrels daily; there were 15.728 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 59,000 barrels per day to 15.896 million barrels daily.
Total petroleum product inventories saw a decrease of 1.5 million barrels. Gasoline stocks declined 4.3 million barrels.
Total product demand increased 775,000 thousand barrels daily to 19.475 million barrels.
Demand for gasoline grew 816,000 barrels per day to 9.435 million barrels daily.
Distillate fuel oil supply rose 1.3 million barrels. Stocks are 127.2 million barrels. National demand was reported at 3.820 million barrels per day during the report week. This was a weekly decrease of 146,000 barrels daily.
Propane stocks rose 2.4 barrels. There are 57.4 million barrels in storage. Current demand is estimated at 0.893 million barrels per day, down 184,000 barrels daily from the previous report week.
Natural Gas
According to EIA: Working gas in storage was 1,461 Bcf as of Friday, March 27, 2015, according to EIA estimates. This represents a net decline of 18 Bcf from the previous week. Stocks were 628 Bcf higher than last year at this time and 190 Bcf below the 5-year average of 1,651 Bcf.
Support for natural gas was established on February 6, 2015 when prices reached $2.567. Since then, prices have reacted to the cooler, long-lasting period now moving into spring. Efforts to rally prices moved values to $3.04 late in February.
Subsequent efforts to rally price failed to produce a new high, despite an extended period of winter. As the trading week ended, natural gas prices added a dime, reflecting the larger than expected withdrawal that accompanied the last full week of the 2014-2015 withdrawal season.
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. 65
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