Crude Oil Supply Buffaloes Bulls
1. Oil demand rises
2. Capital spending falls
3. New crude oil supply appears
4. Natural gas output rises

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse
 
 
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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 severe drop in price that brought WTI crude oil from $59.69 early in July to $46.68 as the month drew to a close was not halted by a brief end-of-month rally. The inability of crude oil prices to mount a credible advance has frustrated analysts, especially because several factors that should lead to a recovery are already in place.

Rising demand and reduced upstream capital investment have become well recognized bullish features of the oil markets. Lower supply, which should follow, has not appeared. And continuing abundance has overweighed demand and lower investment, holding prices down. Lower prices have invited even more bearish expectations from the oil trade.

OPEC has taken the lead in providing new supply. Still more negative price implications remain, apart from the OPEC surge. These include the prospect of more supply from Iran as sanctions are lifted. Another potential supply source could come from Libya should that country’s situation normalize. And production in the United States could resume its upward course as well.

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Distillate fuel oil may also develop substantial weakness as we move into autumn. Harvest lies ahead but storage in mid-America is said to be much higher than in previous years. There is also the prospect of an El Nino winter, characterized by warmer temperatures.

Finally, the traditional autumn distillate fuel oil rally should be starting. This trade was very reliable for many years. More recently, however, the decline of oil as a heating fuel has accelerated in favor of natural gas. One observer notes that this rally has happened in only six of the past ten years.

The last year for which data on home heating oil sales are available is 2013. In that year, distillate sales to residential customers were 84 million barrels—about half as much as sold in 2003, ten years earlier. Residential sales were 6.1 per cent of total distillate fuel oil sales in 2013. This compares with 11.2 per cent in 2003.

 

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Supply/Demand Balances

Supply/demand data in the United States for the week ending July 24, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 0.1 million net barrels during the week ending July 24, 2015.

Builds were reported in stocks of fuel ethanol, distillates, residual fuel oil, and propane. Draws were reported in stocks of RBOB, K-Jet fuel, and other oils.

Crude oil supplies in the United States decreased to 459.7 million barrels, a draw of 4.2 million barrels.

Crude oil supplies increased in two of the five PAD Districts. PADD 1 (East Cost) stocks grew 0.3 million barrels. PADD 2 (Midwest) stocks increased 0.2 million barrels. PADD 3 (Gulf Coast) stocks fell 3.2 million barrels. PADD 4 (Rockies) crude oil stocks decreased 0.2 million barrels, and PADD 5 (West Coast) stocks experienced a decline of 1.3 million barrels.

Cushing, Oklahoma inventories decreased to 57.7 million barrels, a draw of 0.2 million barrels.

Domestic crude oil production decreased 145,000 barrels daily to 9.413 million barrels per day. This crude oil production decline came from the Lower 48 states.

Crude oil imports averaged 7.545 million barrels per day, a daily decrease of 0.396 million barrels.

Refineries used 95.1 per cent of capacity, a decrease of 0.4 percentage points from the previous week.

Crude oil inputs to refineries decreased 108,000 barrels daily; there were 16.762 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 76,000 barrels per day to 17.084 million barrels daily.

Total petroleum product inventories saw an increase of 4.3 million barrels. Gasoline stocks fell 0.4 million barrels; total stocks are 215.9 million barrels.

Total product demand fell 0.775 million barrels daily to 20.246 million barrels per day.

Demand for gasoline decreased 411,000 barrels per day to 9.339 million barrels daily.

Distillate fuel oil supply gained 2.6 million barrels. Stocks are 144.1 million barrels. National demand was reported at 3.628 million barrels per day during the report week. This was a weekly decrease of 0.376 million barrels daily.

Propane added 1.8 million barrels to supply. There are 89.4 million barrels in storage. Current demand is estimated at 0.858 million barrels per day, a decrease of 243,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA: Net storage injection is higher than five-year average, but lower than last year’s build. The net injection reported for the week ending July 24 was 52 Bcf, down from 61 Bcf the previous week. This compares with the five-year average increase of 48 Bcf for the week and last year’s increase of 88 Bcf. Working gas inventories for the storage week totaled 2,880 Bcf, 586 Bcf (26%) higher than last year at this time and 85 Bcf (3%) higher than the five-year (2010-14) average.

Low prices are supporting demand. IEA indicates that U.S. natural gas consumption was 0.5 per cent higher during the report week. In particular, power consumption rose 1.4 per cent. Warm weather led to record power burns, exceeding the highs set in July 2012.

Low price did not constrain production either. Dry natural gas output rose 0.3 per cent during the report week and 4.8 per cent over last year at this time.

 

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