Oil Markets Leaving a Slow Summer Behind
- Oil producers signal interest in a production control agreement
- Crude oil stocks resume growth
- Propane inventories at top of five-year range
- Natural gas prices run into resistance facing autumn shoulder season
The Matrix
Oil markets shrugged off summer’s doldrums this week. Talk of a production freeze among OPEC members, generally unexpected bearish supply data from the EIA and even talk of a “storm everyone will be talking about” gave oil markets a very volatile week.
Weather focused the market wonderfully. One well-known meteorologist noted that “Invest 99-L” might be developing into a tropical storm. He observed that if upgraded to hurricane status, it could potentially become a Category 4 storm.
Storms do not have the same power to move markets that they did before fracking became common. With so much production onshore, interruptions to operations are not as significant as once they were. (nonetheless, operators routinely clear personnel from rigs. Refinery operators take similar measures far more readily than years ago.) As always, the storm track matters. If a hurricane makes land near Houston, there might be greater effects on refineries and thus products. A more easterly landfall could more effect natural gas.
Attention on weather even extended to “way-too-early” looks at winter. Long range forecaster said they were expecting a winter colder and snowier than normal. They pointed to atmospheric patterns to support this idea.
Weather jitters may be affecting nearby prices. Ironically this comes at a time when market chatter is promoting the idea of Saudi Arabia warming up to “market stabilization,” a euphemism for Saudi Arabia ending its price-weakening overproduce-for-market-share policy. Calls for a producer’s meeting in Algeria are widely being interpreted as creating space for a new production control agreement.
To be clear, no such agreement exists anywhere but in the minds of revenue strapped oil producers. Even Iran, only recently allowed to export crude oil is signaling an interest in propping up the market. Importantly, this suggests that Iran may have come close to reaching pre-sanction output levels.
Supply/Demand Balances
Supply/demand data in the United States for the week ending August 19, 2016 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 6.6 million net barrels during the week ending August 19, 2016.
Builds were reported in stocks of fuel ethanol, K-jet fuel, distillates, residual fuel oil, and propane. Gasoline stocks were unchanged from the previous report week and other oils experienced a draw.
Commercial crude oil supplies in the United States increased to 523.6 million barrels, a build of 2.5 million barrels.
Crude oil supplies increased in three of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks grew 3.0 million barrels, PADD 3 (Gulf Coast) stocks increased 0.5 million barrels, and PADD 4 (Rockies) stocks expanded 0.3 million barrels. PADD 2 (Midwest) stocks declined 0.6 million barrels and PADD 5 (West Coast) stocks fell 0.8 million barrels.
Cushing, Oklahoma inventories increased 0.4 million barrels to 64.9 million barrels.
Domestic crude oil production decreased 49,000 barrels daily to 8.548 million barrels per day.
Crude oil imports averaged 8.642 million barrels per day, a daily increase of 449,000 barrels.
Refineries used 92.5 per cent of capacity, a decrease of 1.0 percentage points from the previous report week.
Crude oil inputs to refineries decreased 186,000 barrels daily; there were 16.679 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 190,000 barrels daily to 16.937 million barrels daily.
Total petroleum product inventories saw an increase of 4.1 million barrels from the previous report week.
Gasoline stocks were unchanged from the previous report week; total stocks are 232.7 million barrels.
Demand for gasoline decreased 103,000 barrels per day to 9.659 million barrels daily.
Total product demand increased 116,000 barrels daily to 20.741 million barrels per day.
Distillate fuel oil supply increased 0.1 million barrels; total stocks are 153.3 million barrels. National distillate demand was reported at 3.790 million barrels per day during the report week. This was a weekly increase of 302,000 barrels daily.
Propane stocks increased 2.4 million barrels to 96.1 million barrels. Current demand is estimated at 795,000 barrels per day, a decrease of 160,000 barrels daily from the previous report week.
Natural Gas
According to the Energy Information Administration:
Working gas in storage was 3,350 Bcf as of Friday, August 19, 2016, according to EIA estimates. This represents a net increase of 11 Bcf from the previous week. Stocks were 275 Bcf higher than last year at this time and 350 Bcf above the five-year average of 3,000 Bcf. At 3,350 Bcf, total working gas is above the five-year historical range.
This week marks the 16th consecutive week that the gap of working gas stocks compared with the five-year average declined. When the refill season began on April 1, working gas stocks were 874 Bcf above the five-year average.
The injection was well below expectations. But with natural gas in underground storage over three Tcf, expectations do not seem to matter all that much. Natural gas prices rallied on the day but there seemed to be little enthusiasm for the move. A three-dollar objective is in play, but the onset of the autumn shoulder season could limit a further significant advance.
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