Crude Oil Price Shatters $70 on Bearish OPEC Decision
- OPEC will keep producing at current levels
- EPA delays 2014 Renewable Fuel Standard
- Petroleum stocks fell 4.7 million barrels
- Natural gas prices break support at $4.24.
The Matrix
OPEC will not cut its crude oil output. It will continue to produce according to its current target of 30 million barrels daily. This was the result of the OPEC meeting on Thanksgiving day.
Prices fell hard on the news. WTI crude oil fell to $66.50 at the close. Product prices followed suite. RBOB values broke under $2.00. RBOB prices lost 18.43 cents per gallon, basis January, settling at $1.8276. Distillate fuel oil’s loss was 16.79 cents at the settle of $2.1612.
The overriding question, however, is whether prices will continue to soften. As December begins, it is well to recall that oil prices tend to move lower, reflecting the year-end personal property tax imposed on inventories by both Texas and Louisiana.
This year, refinery utilization has been moving higher. This may reflect limitations on export of U.S. crude oil but allowing product exports in their stead. Product exports moved lower this week to 3.4 million barrels daily, backing away from recent highs, but substantial nonetheless.
The Renewable Fuels Standard (RFS,) developed by the EPA to establish quotas for using ethanol, biodiesel and cellulosic fuels has been delayed for 2014. This leaves obligated parties (largely refiners) uncertain as to how much biological blend stock they should have used this year.
The conditions under which the RFS was initially passed have changed. In particular, demand for gasoline has not grown. This in turn has limited the amount of renewable fuel that can be blended, assuming that no more than a certain percentage of gasoline can be composed of ethanol or other biologics.
Given these changes and uncertainties, EPA has not established a 2014 RFS. In a notice issued on November 21, 2014, the Agency said, “Due to the delay in finalizing the standards for 2014, and given ongoing consideration of the issues presented by the commenters, the agency intends to take action on the 2014 standards rule in 2015. Looking forward, one of EPA’s objectives is to get back on the annual statutory timeline by addressing 2014, 2015, and 2016 standards in the next calendar year.”
Supply/Demand Balances
Supply/demand data in the United States for the week ending November 21, 2014 were released by the Energy Information Administration.
Total commercial stocks of petroleum fell 4.7 million net barrels during the week. Crude oil gasoline and residual fuel oil added to supplies. Distillate fuel oil, kero-jet, ethanol, propane and other oils lost inventory.
Crude oil supplies increased 1.9 million barrels, reaching 383.0 million barrels in the United States. With modest exceptions, crude oil stocks have been moving steadily higher since September 26th, when 356.5 million barrels were in storage.
Stocks of crude oil grew in most Districts. The West Coast (1.8 million barrels) the Midwest (0.4 million barrels) and the Gulf Coast (+ 0.1million barrels) added to stocks.
Cushing, Oklahoma inventories reached 24.6 million barrels according to this week’s report. The recovery of Cushing storage indicates potential containment problems on the Gulf Coast as noted last week and a backup of burgeoning North American crude oil supply.
Petroleum supply was affected by a 73,000 barrel increase in domestic crude oil production during the report week. Production remains over nine million barrels daily. Crude oil imports fell during the week, moving down 165,000 barrels daily to 7.5 million barrels daily.
Crude oil inputs to refining were 16.0 million barrels per day. This was a gain of 44,000 barrels daily. Most of the gain occurred in the Midwest. West Coast facilities experienced a small slowdown in refining activity.
Refinery utilization grew to 91.5 per cent. Utilization has risen steadily since October 1 when only 86.7 per cent of capacity was in use. The Gulf Coast saw the most intense usage, operating at 93.8 per cent.
Inventories netted gains of 4.0 million barrels against declines of 8.7 million barrels. Gasoline added 1.9 million barrels to supply. East Coast stocks gained 1.8 million barrels and the Gulf Coast added 2.5 million barrels.
Demand for gasoline continues to hold above nine million barrels daily. This is unusual for this time of year.
Distillate fuel oil stocks fell to 113.1 million barrels, a weekly decline of 1.7 million barrels. Stocks continue to hug the lower end of the five year range. Midwest supplies are continuing a trend of historically low stocks for the region. National demand rose to 4.1 million barrels per day during the report week.
Propane stocks fell two million barrels. There are 79.2 million barrels in storage. Current demand is estimated at 1.554 million barrels per day.
Natural Gas
According to EIA: Working gas in storage was 3,432 Bcf as of Friday, November 21, 2014. This represents a net decline of 162 Bcf from the previous week. Stocks were 346 Bcf less than last year at this time and 400 Bcf below the 5-year average of 3,832 Bcf.
Weather trends have turned bearish. On the Friday following Thanksgiving, prices moved to $4.088 per mmBtu for spot futures natural gas. A further decline of more than ten cents was seen on Monday. At writing, natural gas is trading under $4.00. Next support is at $3.93. If broken, major support is at $3.54, the low of October 28, 2014.
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