U.S. Oil Supply Tightening

  1. Domestic crude supply down 10% from highs
  2. Distillate fuel oil demand up 8% year-over-year
  3. Propane loses nearly 40% of days supply
  4. Natural gas storage injections lag last year: high power demand and growing exports


Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse

The Matrix

Oil markets saw a sixth-consecutive weekly reduction in U.S. crude oil stocks following release of data by the Energy Information Administration (EIA). Commercial crude oil stocks fell to 475.4 million barrels daily during the week ending August 4, 2017. This was a weekly drop of 6.5 million barrels. It continues a decline of 52 million barrels since crude oil stocks hit an all-time high of 528 million barrels in March of this year.

Some analysts see this decline as an industry effort to “rebalance” the market, presumably in support of higher prices. More likely, it seems to Powerhouse, the erosion of crude stocks is the inevitable result of expanding refinery crude oil demand, a sharp pullback in net imports and a small reduction in domestic crude oil production.

The lessening of supply can be found throughout the petroleum complex. And when stocks are measured relative to demand, the resulting statistic—Days of Supply (DOS)—heightens concerns for availability.  The drop in DOS have been sharp. In March of 2017, the U.S. crude oil inventory was adequate for 34.2 days. Most recently, there are only 27.4 days of crude oil supply.

Distillate fuel oil has experienced robust demand in 2017. Year-to-date consumption of distillates has been running 4.1 million barrels daily in 2017. Last year for the same period, distillate usage was 3.8 million barrels per day. The improvement in demand was satisfied in part out of storage. There are today 34 days supply of distillate fuel oil. Last year at this time, DFO supply stood at 39.5 days. This was part of the drop in days supply that began at 49.3 days supply in January 2016.












The most impressive loss of days supply, perhaps, occurred in propane. There are today 65.8 days propane inventory available. There were 106.3 days supply at their peak in September 2016. It’s especially important to monitor availability in this situation.


Supply/Demand Balances

Supply/demand data in the United States for the week ending August 4, 2017, were released by the EIA.

Total commercial stocks of petroleum decreased 4.6 million barrels during the week ending August 4, 2017.

Builds were reported in stocks of gasoline, fuel ethanol and residual fuel. Draws were reported in stocks of distillates and other oils. K-jet fuel and propane stocks were unchanged from the previous report week.

Commercial crude oil supplies in the United States decreased to 475.4 million barrels, a draw of 6.5 million barrels.

Crude oil supplies decreased in four of the five PAD Districts. PADD 2 (Midwest) crude oil stocks declined 0.6 million barrels, PADD 3 (Gulf Coast) crude stocks retreated 4.1 million barrels, PADD 4 (Rockies) stocks fell 0.3 million barrels and PADD 5 (West Coast) stocks decreased 1.5 million barrels. PAD District 1 (East Coast) crude oil stocks increased 0.1 million barrels.

Cushing, Oklahoma, inventories increased 0.6 million barrels from the previous report week to 56.4 million barrels.

Domestic crude oil production decreased 7,000 barrels daily to 9.423 million barrels per day from the previous report week.

Crude oil imports averaged 7.762 million barrels per day, a daily decrease of 491,000 barrels. Exports rose 5,000 barrels daily to 707,000 barrels per day.

Refineries used 96.3% of capacity, an increase of 0.9 percentage points from the previous report week.

Crude oil inputs to refineries increased 166,000 barrels daily. There were 17.574 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 95,000 barrels daily to 17.861 million barrels daily.

Total petroleum product inventories saw an increase of 1.9 million barrels from the previous report week.

Gasoline stocks increased 3.4 million barrels; total stocks are 231.1 million barrels.

Demand for gasoline fell 45,000 barrels per day to 9.797 million barrels daily.

Total product demand increased 1.339 million barrels daily to 21.929 million barrels per day.

Distillate fuel oil supply fell 1.7 million barrels to 147.7 million barrels. National distillate demand was reported at 4.510 million barrels per day during the report week. This was a weekly increase of 370,000 barrels daily.

Propane stocks were unchanged from the previous report week at 67.6 million barrels. This breaks a 12-week streak of consecutive propane inventory builds. Stocks are now over 25% lower than this report week last year. Propane inventories at the Gulf Coast declined 800,000 barrels week over week. Current demand is estimated at 1.307 million barrels per day, an increase of 403,000 barrels daily from the previous report week.


Natural Gas

According to the EIA:

Working gas in storage was 3,038 Bcf as of Friday, August 4, 2017. … This represents a net increase of 28 Bcf from the previous week. Stocks were 275 Bcf less than last year at this time and 61 Bcf above the five-year average of 2,977 Bcf. At 3,038 Bcf, total working gas is within the five-year historical range.

The weekly net injection into storage of 28 Bcf compared with the five-year (2012 – 2016) average net injection of 54 Bcf and last year’s net injections of 24 Bcf during the same week. The smaller-than-average net injections this week likely resulted from the warmer-than-normal temperatures in most of the Lower 48 states and increasing cooling demand for natural gas.

So far in the 2017 refill season, net injections into working gas storage are lower than the five-year average in most regions of the Lower 48 states. Net injections into working gas have been at 987 Bcf since March 31, 2017—the traditional beginning of the refill season—compared with the five-year average of 1,191 Bcf over the same period.

Relatively small injections this year can be explained by higher demand for natural gas from the electric sector and expanded exports. Moreover, the injection season began with relatively high inventory levels.











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.


Powerhouse is a registered affiliate of Coquest, Inc.

Was this helpful? We’d like your feedback.
Please respond to Alan@PowerhouseTL.com.

Copyright © 2017 Powerhouse, All rights reserved.