Crude Oil Price “Lower for Longer” in Control
- Crude oil breaks $42
- Refiners use over 17 million b/d for fifth week in a row
- Propane stocks reach new high
- Natural gas injection crushes futures price
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
WTI crude oil prices reached new lows during the week ending August 14th. This reflected very abundant global stocks of crude oil, pressuring prices lower. At the same time, the International Energy Agency (IEA) raised its forecast for petroleum demand, providing a counterweight to the bearish supply situation. IEA also confirmed its view that global oversupply is so great that excess stocks could last through 2016.
Refineries in the United States continue to operate near capacity. Crude oil runs to stills remained over 17 million barrels daily for the second consecutive week. Gross inputs have been running over 17 million barrels per day for five weeks in a row.
Petroleum products added 7.3 million barrels to inventories during the week ending August 7th. In particular, distillate fuel oil and propane added substantially to stocks. Notwithstanding these bearish increases, gasoline stocks were reduced and problems reported at the Whiting, Indiana plant pushed gasoline prices higher.
U.S. crude oil production slowed during the report week, perhaps foreshadowing a revised Energy Information Administration (EIA) projection of declining crude oil production. EIA now expects production to come in at 9.36 million barrels daily for 2015, a 1.2 per cent reduction in its forecast. Nonetheless, crude output would still be 650,000 barrels daily higher than in 2014 and the highest since 1972.
The agency expects 2016 production to reach 8.96 million barrels per day, cutting its forecast from 9.32 million barrels daily. And while a slowdown is projected for this year and 2016, EIA predicts a recovery in production. IEA anticipates output of 9.6 million daily barrels during the last three months of 2016.
The complexity of bullish demand and bearish supply may cause price to cycle in a narrow range in the near term. Looking forward, scheduled autumn refinery turnarounds will cut into demand for crude oil.
And the loss of refining activity at Whiting, a 413,000 barrel daily facility, should add to the crude oil surplus and put more pressure on crude oil prices this fall.
Supply/Demand Balances
Supply/demand data in the United States for the week ending August 14, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 5.6 million net barrels during the week ending August 14, 2015.
Builds were reported in stocks of distillates, residual fuel oil, propane, and other oils. Draws were reported in stocks of RBOB, fuel ethanol, and K-jet fuel.
Crude oil supplies in the United States decreased to 453.6 million barrels, a draw of 1.7 million barrels.
Crude oil supplies decreased in two of the five PADD Districts. PADD 3 (Gulf Coast) stocks declined 2.9 million barrels and PADD 5 (West Coast) stocks experienced a decline of 0.1 million barrels. PADD 1 (East Cost) stocks grew 0.7 million barrels and PADD 4 (Rockies) crude oil stocks increased 0.7 million barrels. PADD 2 (Midwest) stocks were unchanged from last week.
Cushing, Oklahoma inventories decreased to 57.1 million barrels, a draw of 0.1 million barrels.
Domestic crude oil production decreased 70,000 barrels daily to 9.395 million barrels per day. This reduction to crude oil production came from the Lower 48 states.
Crude oil imports averaged 7.573 million barrels per day, a daily increase of 0.393 million barrels.
Refineries used 96.1 per cent of capacity, unchanged from the previous week.
Crude oil inputs to refineries decreased 46,000 barrels daily; there were 17.029 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, were unchanged from the previous report week at 17.261 million barrels daily.
Total petroleum product inventories saw an increase of 7.3 million barrels. Gasoline stocks fell 1.3 million barrels; total stocks are 215.5 million barrels.
Total product demand fell 127,000 barrels daily to 20.094 million barrels per day.
Demand for gasoline decreased 1,000 barrels per day to 9.686 million barrels daily.
Distillate fuel oil supply gained 3.0 million barrels. Stocks are 147.8 million barrels. National demand was reported at 3.545 million barrels per day during the report week. This was a weekly decrease of 0.234 million barrels daily.
Propane added 2.4 million barrels to supply. There are 92.8 million barrels in storage. Current demand is estimated at 0.857 million barrels per day, a decrease of 198,000 barrels daily from the previous report week.
According to the EIA:
Working gas in storage was 2,977 Bcf as of Friday, August 7, 2015, according to EIA estimates. This represents a net increase of 65 Bcf from the previous week. Stocks were 521 Bcf higher than last year at this time and 81 Bcf above the 5-year average of 2,896 Bcf.
The injection was 10 Bcf higher than market expectations. Prices fell sharply on release of the news, settling on Thursday at $2.787, down 14.4 cents for the September futures contract.
Technically, natural gas futures have been trendless since May. Prices have ranged between $2.55 and $2.955. Volatility has been shrinking and options values have fallen too. It is not possible to identify a trend at this time. The market awaits a break of the recent range to determine future direction.
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 04 NO. 32
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