Weekly Energy Market Situation-August 15, 2022

New Oil Supply Comes Near a Seasonal Low

New Iranian oil may be on its way
OPEC+ new supply slated later this year
Seasonal product prices tend to bottom now
Natural Gas volatility has expanded dramatically in 2022.

Sincerely,

Alan Levine, Chairman

Powerhouse
(202) 333-5380

The Matrix

The possibility of a deal with Iran has been given a boost. The European Union will reportedly send a final draft of a renewed 2015 nuclear agreement to the U.S. and Iran. If approved, it will restore Iranian crude oil to world markets while easing nuclear tensions in the Middle East.

Analysts estimate an increase in oil exports from Iran between one and one-and-one-half million barrels daily over the next six months following renewal of the deal. This would be bearish for oil prices.

OPEC+ will add 100,000 barrels per day to September supply, bringing group output to about pre-pandemic levels. The increase is very small, less than one-tenth of one percent of global demand.

The gain has been seen as a political snub to President Biden. His recent trip to Riyadh was intended to get new oil to ease gasoline supply concerns. But some observers brushed off these concerns. Saudi Arabia, like much of OPEC has limited new capacity available, limiting its options.

American officials expect OPEC+ to raise supply in more distant months. President Biden’s trip has as much to do with concerns over the ongoing conflict in Yemen and uncertainty over the impact of sanctions on Russian exports, set for later this year.

The potential for new supply over the next several months was not enough to keep higher oil prices at bay. Spot futures prices for WTI crude oil bottomed on August 5 at $87.01. They reached $95.05 by last Thursday, ending the week at $92.08.

Product prices followed much the same pattern. ULSD finished last week at $3.52. RBOB’s recovery came to $3.0460. As discussed here before, seasonal lows often take place at this time. Resistance for ULSD is at $3.81, with major resistance at $4.65. RBOB resistance can be found at $3.71. Prices topped out at $4.326 in June.

Supply/Demand Balances

Supply/demand data in the United States for the week ended August 5, 2022, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose 13 million barrels during the week ended August 5, 2022.

Commercial crude oil supplies in the United States increased by 5.5 million barrels from the previous report week to 432 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Plus 0.4 million barrels to 7.9 million barrels
PADD 2: Plus 1.0 million barrels to 108.8 million barrels
PADD 3: Plus 4.7 million barrels to 242.4 million barrels
PADD 4: Down 0.2 million barrels to 23.5 million barrels
PADD 5: Down 0.4 million barrels to 49.9 million barrels

Cushing, Oklahoma inventories were up 0.7 million barrels from the previous report week to 25.2 million barrels.

Domestic crude oil production was up 100,000 barrels per day from the previous report week to 12.2 million barrels daily.

Crude oil imports averaged 6.171 million barrels per day, a daily decrease of 1,171,000 barrels. Exports decreased 1,402,000 barrels daily to 2.110 million barrels per day.

Refineries used 94.3% of capacity; 3.3 percentage points higher than the previous report week.

Crude oil inputs to refineries increased 728,000 barrels daily; there were 15.853 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 596,000 barrels daily to 16.916 million barrels daily.

Total petroleum product inventories rose by 7.5 million barrels from the previous report week, rising to 789.8 million barrels.

Total product demand decreased 475,000 barrels daily to 19.474 million barrels per day.

Gasoline stocks decreased 5 million barrels from the previous report week; total stocks are 220.3 million barrels.

Demand for gasoline rose 582,000 barrels per day to 9.123 million barrels per day.

Distillate fuel oil stocks increased 2.2 million barrels from the previous report week; distillate stocks are at 111.5 million barrels. EIA reported national distillate demand at 3.724 million barrels per day during the report week, a decrease of 152,000 barrels daily.

Propane stocks were up 2.1 million barrels from the previous report week to 65.7 million barrels. The report estimated current demand at 606,000 barrels per day, an increase of 139,000 barrels daily from the previous report week.

Natural Gas

Natural gas volatility has expanded dramatically in 2022. EIA’s chart of 30-day historical volatility shows the impact of heightened European demand for LNG in 2022 through the first quarter of the year and into July. (The loss of supply at Freeport, La. did not occur until June 8.)

Natural gas’s spot futures price (Henry Hub) opened 2022 at its low, $3.64. A $9.664 top was reached in June. A sharp sell-off to $5.325 set the stage for a recovery to $9.752. Natural gas spot futures prices are now around $8.85.

July 2022 volatility indicates the possibility of prices ranging up or down by 109% annualized if activity continues at recent rates. The market has not disappointed. This computes to a price of $17.50. Elliott Wave counts approach $14.00.

These numbers are, of course, speculative, but a price of $15.78 was seen in 2005. Nearly twenty years later, natural gas demand reflects a larger economy, a new role as the transitional fuel to a clean air future and expanding markets for LNG overseas.

According to the EIA:

The net injections into storage totaled 41 Bcf for the week ended July 29, compared with the five-year (2017–2021) average net injections of 33 Bcf and last year’s net injections of 16 Bcf during the same week. Working natural gas stocks totaled 2,457 Bcf, which is 12%, or 337 Bcf, lower than the five-year average and 10%, or 268 Bcf, lower than last year at this time.

Net injections [of natural gas] into storage totaled 44 Bcf for the week ended August 5, compared with the five-year (2017–2021) average net injections of 45 Bcf and last year’s net injections of 44 Bcf during the same week. Working natural gas stocks totaled 2,501 Bcf, which is 338 Bcf (12%) lower than the five-year average and 268 Bcf (10%) lower than last year at this time. The average rate of injections into storage is 5% lower than the five-year average so far in the refill season (April through October). If the rate of injections into storage matched the five-year average of 9.3 Bcf/d for the remainder of the refill season, the total inventory would be 3,307 Bcf on October 31, which is 338 Bcf lower than the five-year average of 3,645 Bcf for that time of year.\

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