Active Atlantic Hurricane Season Seen

  1. Fifth consecutive Active Hurricane Season coming
  2. Expect at least one violent Cat 5 storm
  3. Enormous demand destruction for oil and national gas
  4. WTI price low relative to natural gas price

Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse
 
 
 

The Matrix

The focus on novel coronavirus has taken all the oxygen out of the room. Conversations seem to focus on nothing else. But nature has a way of asserting herself, and it’s time to talk hurricanes. The Atlantic hurricane season starts traditionally on June 1st, and prognostications of hurricane activity are becoming available.

The Colorado State University, recognized for its research in hurricane prediction, is calling for an above-average Atlantic hurricane season. The university notes that the Atlantic basin has had four consecutive active hurricane seasons and calls for yet another season with “at least one violent Category 5 storm.

The reasons for another active year include higher than average Atlantic sea surface temperatures, and the absence of a tropical Pacific Ocean El Nino. Warm water in the Gulf of Mexico heightens concerns for both hurricanes and tornados. Colorado projects a 44 percent risk of a major hurricane (defined as reaching Cat 3 strength or better with winds higher than 110 mph) in the Gulf.

Meteorologists use a measure of Accumulated Cyclone Energy (ACE) to measure how much energy is spent in the form of damaging winds during a storm’s lifetime.  Colorado is predicting an ACE of 150 this season. This exceeds the long-term average of 106 ACE units.

The fallout from Covid-19 has included the possibility that a new agreement between Saudi Arabia and Russia may emerge. Reductions in crude oil production between 10 and 15 million barrels are under discussion.

Markets reacted violently when that possibility became public knowledge on Thursday, April 1st. WTI crude oil added $4.92 to its value in less than five minutes. Product prices rose too. ULSD reached $1.1384, an addition of $0.185.

Such an arrangement would be unprecedented. There is talk of including the United States in the deal. (There are regulations that would allow imposition of controls on domestic production.)

Removing so large a quantity of crude oil would be bullish, but demand destruction has been enormous. EIA reported the loss of 2.2 million barrels per day of gasoline demand in the United States alone during the week ending March 27, 2020.  This loss (and similar losses elsewhere) could be enough perhaps to dampen even so large a loss of crude oil supply.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending March 27, 2020, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose by 21.0 million barrels during the week ending March 27, 2020.

Commercial crude oil supplies in the United States increased by 13.8 million barrels from the previous report week to 469.2 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Plus 0.2 million barrels to 11.5 million barrels
PADD 2: Plus 4.7 million barrels to 134.4 million barrels
PADD 3: Plus 6.5 million barrels to 247.8 million barrels
PADD 4: Plus 0.5 from the previous report week at 21.8 million barrels
PADD 5: Plus 2.0 million barrels to 53.7 million barrels

Cushing, Oklahoma inventories were up 2.5 million barrels from the previous report week to 42.8 million barrels.

Domestic crude oil production was unchanged from the previous report week at 13.0 million barrels daily.

Crude oil imports averaged 6.047 million barrels per day, a daily decrease of 70,000 barrels. Exports fell 695,000 barrels daily to 3.155 million barrels per day.

Refineries used 82.3 percent of capacity, down 5.0% from the previous report week.

Crude oil inputs to refineries decreased 940,000 barrels daily; there were 14.898 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 936,000 barrels daily to reach 15.481 million barrels daily

Total petroleum product inventories rose 7.2 million barrels from the previous report week.

Gasoline stocks increased 7.5 million barrels daily from the previous report week; total stocks are 246.8 million barrels.

Demand for gasoline fell 2.178 million barrels per day to 6.659 million barrels per day.

Total product demand decreased 1.553 million barrels daily to 17.847 million barrels per day.

Distillate fuel oil stocks decreased 2.2 million barrels from the previous report week; distillate stocks are at 122.2 million barrels. EIA reported national distillate demand at 3.907 million barrels per day during the report week, an increase of 113,000 barrels daily.

Propane stocks decreased 0.3 million barrels from the previous report week; propane stocks are 64.7 million barrels. The report estimated current demand at 1.352 million barrels per day, an increase of 293,000 barrels daily from the previous report week.

 

Natural Gas

Spot natural gas futures have been caught in a price range between $1.51 and $1.73. Some analysts attribute movements in natural gas prices to activity in crude oil. They use the ratio of crude-to-gas to track natural gas balances. By this measure, crude oil prices were 30 times greater than those of natural gas early in January. This compares with a dozen-year average of 21 times. That ratio has fallen even further, recording a ratio as low as 6 times.

According to EIA:

The net withdrawal from [natural gas] storage totaled 19 Bcf for the week ending March 27, compared with the five-year (2015–19) average net withdrawal of 19 Bcf and last year’s net injection of 6 Bcf during the same week. Working natural gas stocks totaled 1,986 Bcf, which is 292 Bcf more than the five-year average and 863 Bcf more than last year at this time.

The average rate of withdrawal from storage is 13% lower than the five-year average so far in the withdrawal season (November through March). If the rate of withdrawal from storage matched the five-year average of 1.4 Bcf/d for the remainder of the withdrawal season, the total inventory would be 1,989 Bcf on March 31, which is 292 Bcf higher than the five-year average of 1,697 Bcf for that time of year.

 

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Powerhouse is a registered affiliate of Coquest, Inc.
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