Last week saw further affirmation of an expanding US economy. Non-farm payrolls added 192,000 during March. All of the gains were in the private sector.
Crude oil prices remained around $100 per barrel, despite relatively high levels of stock. High stock levels are not yet creating containment challenges. Some analysts put Gulf Coast stocks at 60 per cent of capacity; others estimated that regional supplies account for less than 54 per cent of capacity.
Commercial stock of all oils fell 1.3 million barrels last week, all of this on the Gulf Coast. Shipping problems on the Houston Ship Channel were behind the drop. Cushing OK lost another 1.3 million barrels of crude oil in storage.
Natural gas ended the withdrawal season with 822 Bcf in underground storage. This was slightly more than half of last year’s end of season level.
Alan Levine
Chairman, Powerhouse
The Matrix
Employment continued to expand in the United States in the month of March. U.S. non-farm payrolls added 192,000 jobs. Payrolls for both January and February were revised, adding 37,000 jobs seasonally adjusted. Unemployment remained at 6.7 per cent. The private sector accounted for all the gain. Importantly, non-governmental employment reached 116.1 million, higher than the previous high of 115.98 which was reached in January, 2008.
Crude oil prices continue to stick around $100, notwithstanding high levels of stocks. An attempt to move crude oil under $98.86 last Wednesday was rejected by the market. Prices have since recovered and ended the week over $100.00.
It may take Gulf Coast crude oil storage containment issues and backing crude oil into Cushing’s facilities to induce a break in the price of WTI. The chart below shows the impressive gain in crude oil supplies since early this year. This chart is part of a larger suite found at Powerhouse’s website, www.powerhouseTL.com.
How close is the market to the Gulf Coast’s maximum storage capacity? The question is not a straightforward estimate of aggregate barrels which one analyst estimates to be 333 million barrels. On this basis, current supplies held in Gulf Coast storage, estimated by EIA to be 200 million barrels, are filling 60 per cent of capacity.
An important reduction in storage capacity is ullage, the amount of space needed to be left unfilled to accommodate expansion due to temperature. Moreover, analysis of effective storage requires evaluation of storage available among differing sectors.
Morgan Stanley Research estimates storage at refineries and tank farms to be 273 million barrels. There are, in addition, storage capabilities on pipelines and at leases. The effect of pipeline fill has been largely ignored. New pipelines have been coming on stream on the Gulf Coast in recent months. The total available pipeline storage is around 40 million barrels according to Morgan Stanley. Another 20 million barrels of storage are available on leaseholds.
The Energy Information Administration reports storage capacity at tank farms and refineries. Weekly estimates of crude oil stocks also include pipelines and leases.
Supply/Demand Balances
Supply/demand data for the week ending March 28, 2014 were released by the Energy Information Administration.
Total commercial stocks of oil fell 1.3 million barrels. Crude oil supplies fell 2.4 million barrels during the report week. The decline likely related to shipping issues in the Houston Ship Channel. Imports fell 786,000 barrels daily to 608 million barrels daily.
PADD III stocks themselves fell 1.3 million barrels. There are 199 million barrels of crude oil in Gulf Coast storage. The debate over how close current stocks are to maximum regional capacity is heating up.
Cushing OK lost another 1.3 million barrels of stock, now at 27.3 million barrels.
Gasoline stocks fell to 215.6 million barrels, a weekly drop of 1.6 million barrels. East Coast facilities had most of the decline. Weekly demand lost 289,000 barrels daily.
Distillate fuel oil lost only 600,000 barrels in storage during the week. Much of that was on the East Coast where 2.1 million barrels found their way into storage. Distillate fuel oil demand rose to 3.8 million barrels daily.
Propane inventories added 900 thousand PADD III stocks themselves fell 1.3 million barrels during the week, now at 26.6 million barrels. Supplies are hugging the lower end of the range of the past five years.
Natural Gas
According to the EIA, cooler weather brought a larger-than-average net withdrawal.
The net withdrawal reported for the week ending March 28 was 74 Bcf, 66 Bcf larger than the 5-year average net withdrawal of 8 Bcf but 21 Bcf smaller than last year’s net withdrawal of 95 Bcf. Working gas inventories totaled 822 Bcf, 878 Bcf (51.6%) less than last year at this time, 992 Bcf (54.7%) below the 5-year (2009-13) average, and 783 Bcf (48.8%) below the 5-year minimum.
Natural gas usage achieved a record this winter, rising to 90.6 Bcf per day according to EIA. This was a gain of 8 per cent year-on-year, notwithstanding higher prices. The gains were particularly notable in the residential and commercial sectors.
Attention will now turn to refill of storage. There are 31 weeks in the injection season now beginning. If supplies are to reach 3.8 Tcf by the end of October, weekly average builds will have to reach nearly 100 Bcf.
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. 14
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