Weakness Returns to Oil Markets
- Another crude oil storage record
- Distillate fuel oil demand lags 2015 by one half million barrels daily
- Rising refinery use bearish for products
- Natural gas supply and demand in rough balance
The Matrix
WTI crude oil prices appear to have confirmed the downturn discussed in last week’s Energy Market Situation. A move below $36 breaks support. It could invite further softness reflecting new supplies coming into already swollen storage. In particular, the increase was centered on the Gulf Coast where inventories reached 282 million barrels, reportedly a new supply record.
Other evidence of incipient weakness can be seen in demand data. Total product demand stood at 19.6 million barrels daily for 2016 as of the week ending March 25th, slightly higher than last year at this time. Gasoline demand this year exceeds last year by 320,000 barrels daily. All other products are lagging by 232,000 barrels per day. And distillate fuel oil demand thus far this year fails 2015 by 516,000 barrels daily.
Weakness in oil prices may also be part of a larger bearish situation in commodities markets. Copper, another widely used and traded commodity, is often seen as a reliable indicator of general economic activity. But copper faces the same kind of supply surplus and excess productive capacity as does crude oil. Long liquidation of copper positions could induce similar softness in WTI, suggesting a retest of recent lows.
One bullish indicator for WTI crude oil may be growth in refinery utilization. Refineries are operating at more than ninety per cent of capacity for the first time since the week ending January 15th.
An expansion of gasoline production could press even further on its price. And refinery turnarounds are not unusually large this season. EIA’s recent report on Refinery Outages in the first half of 2016 says, “Planned refinery maintenance during the first half of 2016 is not expected to adversely affect the supply of gasoline, jet fuel, and distillate fuel.”
Supply/Demand Balances
Supply/demand data in the United States for the week ending March 25, 2016 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 1.5 million net barrels during the week ending March 25, 2016.
Builds were reported in stocks of fuel ethanol, K-jet fuel, propane, and other oils. Draws were reported in stocks of gasoline and distillates. Stocks of residual fuel oil were unchanged from the previous report week.
Crude oil supplies in the United States increased to 534.8 million barrels, a build of 2.3 million barrels. This is a new record for U.S. commercial crude oil storage, government data show.
Crude oil supplies increased in four of the five PAD Districts. PADD 1 (East Coast) crude oil stocks increased 0.4 million barrels, PADD 2 (Midwest) stocks grew 0.6 million barrels, PADD 3 (Gulf Coast) stocks rose 1.9 million barrels, and PADD 4 (Rockies) expanded 0.1 million barrels. PAD District 5 (West Coast) crude oil stocks fell 0.7 million barrels.
Cushing, Oklahoma inventories decreased 0.2 million barrels to 66.0 million barrels.
Domestic crude oil production decreased 16,000 barrels daily to 9.022 million barrels per day.
Crude oil imports averaged 7.748 million barrels per day, a daily decrease of 636,000 barrels.
Refineries used 90.4 per cent of capacity, an increase of 2.0 percentage points from the previous report week.
Crude oil inputs to refineries increased 414,000 barrels daily; there were 16.234 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 353,000 barrels to 16.422 million barrels daily.
Total petroleum product inventories saw a decrease of 0.8 million barrels from the previous report week.
Gasoline stocks decreased 2.5 million barrels; total stocks are 242.6 million barrels. Demand for gasoline decreased 259,000 barrels per day to 9.244 million barrels daily. Gasoline demand year-to-date is up 3.6%, according to the EIA.
Total product demand increased 51,000 barrels daily to 19.454 million barrels per day.
Distillate fuel oil supply decreased 1.1 million barrels; total stocks are 161.2 million barrels. National distillate demand was reported at 3.848 million barrels per day during the report week. This was a weekly increase of 475,000 barrels daily.
Propane stocks increased 0.6 million barrels to 62.8 million barrels. Current demand is estimated at 1.069 million barrels per day, a decrease of 120,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
Net withdrawals from storage were larger than the five-year (2011-15) average for this time of year. Net withdrawals from storage totaled 25 Bcf, compared with the five-year average withdrawal of 22 Bcf and the year-ago withdrawal of 10 Bcf for the storage report week. This ends an eight-week streak in which the implied net change was smaller than the five-year average. Since January 22, the storage surplus compared with the five-year average has grown from 432 to 843 Bcf. Natural gas storage is 1,002 Bcf higher than a year ago.
Working gas stocks remain at record high for this time of year. Despite a larger-than-average net withdrawal for the week, working gas stocks remain at record-highs for this time of year. Working gas stocks are currently 27 Bcf above the five-year maximum for the storage report week of 2,441 Bcf set in 2012. The traditional end of the season is March 31. The record high for the end of the heating season occurred in 2012, when working gas stocks totaled 2,473 Bcf.
Supply and demand for natural gas appear to be coming into alignment. The chart below shows the balance between supply and demand for the past year. Levels appear well balanced, after many months of surplus supply through November and last winter, when demand ate into stocks. EIA reports declines in year on year supply of 1.85 per cent for the report week. Comparable demand fell 3.1 per cent.
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