Bearish Supply Meets Bullish Response Again
- Gasoline Crack Spread shows renewed strength
- Gains in crude oil production stall
- Price increases expected to be slow to develop
- Natural gas storage could reach 3.8 Tcf by November
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 latest inventories published by the Energy Information Administration showed substantial gains in supply except that RBOB stocks fell more than two million barrels. At the same time, crude oil inventories gained substantially. Refinery operations slowed.
The June gasoline crack spread opened at $22.78 on Wednesday, April 22, 2015 before release of the government’s data. At the close of business that day, the June crack spread reached $24.87, a gain in value of more than two dollars. Taken together, these data, bullish for gasoline and bearish for crude oil, suggest the gasoline crack spread may be preparing for a new rally phase.
Analysts are no longer expecting oil prices to revisit highs last seen before the dramatic declines of the past year. Evidence of this less bullish view is slowing activity in U.S. oil drilling.
The more pessimistic view of a recovery in drilling reflects technological factors relating to hydraulic fracturing. The number of wells that have been drilled but are not yet fracked has been growing. There is also an increase in refracturing wells that are nearing the end of their productive life.
When the boom in oil shale began, production and the number of rigs in use rose together. More recently, production has continued to at a high rate while the rig count has collapsed to about half its peak last October. Baker Hughes estimates that oil rigs are at their lowest level since 2010.
The availability of so many incomplete wells and wells ready for rework could create a market recovery pattern with prices tracing out a bottom over a period thought by some to last over the next four to five years.
Supply/Demand Balances
Supply/demand data in the United States for the week ending April 17, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 9.2 million net barrels during the week ending April 17, 2015.
Builds were reported in stocks of fuel ethanol, distillate fuel oil, residual fuel oil, propane, and other oils. Gasoline and K-jet stocks saw a decline.
Crude oil supplies in the United States increased to 489.0 million barrels, a build of 5.3 million barrels.
Crude oil supplies increased in PAD Districts on the Gulf Coast (+5.5 million barrels) and in the Rockies. Gulf Coast facilities increased regional supply to 242.5 million barrels. Concerns about inventory containment on the Gulf may be overhyped—at least for now. EIA’s listing of storage capacity as of September 30, 2014 put regional operating capacity at 331.7 million barrels.
PADD 1 (East Coast) stocks declined 0.4 million barrels. PADD 2 (Midwest) crude oil stocks declined 0.5 million barrels.
Cushing, Oklahoma inventories rose 1.3 million barrels. This puts Cushing storage at 61.5 million barrels.
Domestic crude oil production decreased 18,000 barrels daily. Daily production for the week ending April 10 was 9.366 million barrels. Crude oil imports averaged 7.765 million barrels per day, a daily increase of 617,000 barrels.
Refineries used 91.2 per cent of capacity, a decrease of 1.1 percentage points from the previous week.
Crude oil inputs to refineries fell by 230,000 barrels daily; there were 15.982 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, dropped 205,000 barrels per day to 16.308 million barrels daily.
Total petroleum product inventories saw an increase of 9.2 million barrels. Gasoline stocks declined 2.1 million barrels.
Total product demand gained 144,000 thousand barrels daily to 19.139 million barrels.
Demand for gasoline rose 270,000 barrels per day to 9.1854 million barrels daily.
Distillate fuel oil supply increased 0.4 million barrels. Stocks are 129.3 million barrels. National demand was reported at 3.855 million barrels per day during the report week. This was a weekly increase of 48,000 barrels daily.
Propane stocks rose 2.0 million barrels. There are 62.0 million barrels in storage. Current demand is estimated at 887 thousand barrels per day, down 19,000 barrels daily from the previous report week.
Natural Gas
According to EIA: The net injection reported for the week ending April 17 was 90 Bcf, up from 63 Bcf last week. This compares with the five-year average net increase of 46 Bcf for that week and last year’s net increase of 45 Bcf. Working gas inventories for the storage week totaled 1,629 Bcf, 737 Bcf (82.6%) higher than last year at this time and 101 Bcf (5.8%) lower than the five-year (2010-14) average.
There are currently 28 more weeks in the injection season, which traditionally occurs April 1 through October 31, although in many years injections continue into November. EIA forecasts that the end-of-October working natural gas inventory level will be 3,781 Bcf, which, as of April 17, would require an average injection of 77 Bcf per week through the end of October. EIA’s forecast for the end-of-October inventory levels are below the five-year (2010-14) average peak storage value of 3,813 Bcf. To reach the five-year average peak value, average weekly injections through the end of October would need to be 78 Bcf.
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