Crude Oil Breaks Under $60

  1. Price charts are bearish. Crude oil and RBOB have lost nearly half of value.
  2. Global crude oil stocks are filling storage. Containment could be a challenge.
  3. Refinery use in the U.S. still rising.
  4. Natural gas reached a daily production record.

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse
 
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 Click chart to enlarge.

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

Price charts point still lower. WTI fell to $57.81, breaking minor support at $58.35. WTI has lost about 46.3 per cent of its value since mid-June when it topped at $107.68. Elliott Wave analysis suggests a rally to $75 is possible. Fifty dollars is a downside possibility.

RBOB reached a maximum on June 23rd at $3.1520. Prices have lost 49.3 per cent of value, surprising in light of the continuing strength of demand. RBOB broke support at $1.60. Next minor support is at $1.35.

Distillate fuel oil fell to $2.0160. Support is at $1.98. Further weakness finds support at $1.72. Distillate fuel oil peaked in June at $3.0711. It has since lost 34.3 per cent of value.

Compounding the bearish tone of prices, the International Energy Agency has cut its estimate of world-wide crude oil demand for the fourth time in five months. The IEA reduced its estimate because budgets of oil producer nations, particularly Russia, are being harmed by lower crude oil prices.

IEA also noted that global oil stocks could rise by 297 million barrels in the first six months of 2015. This suggests that inventories in OECD countries could rise to 2.87 billion barrels, “straining some nations’ ability to store.”

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending December 5, 2014 were released by the Energy Information Administration.

Total commercial stocks of petroleum rose 7.4 million net barrels during the report week. Increases focused on the lighter ends: gasoline and distillate fuel oils while declines were experienced for residual fuel oil, propane and other oils.

Crude oil supplies added 1.5 million barrels to 380.8 million barrels in the United States.

Stocks increased in each PAD District but the Midwest. The West Coast (1.4 million barrels,) the Gulf Coast (0.5million barrels) and the East Coast (0.2 million barrels) added inventories. The Midwest alone showed a drop of 900 thousand barrels.

Cushing, Oklahoma inventories rose to 24.9 million barrels according to this week’s report. This was an increase of 1.0 million barrels for the report week. Stocks at Cushing have been growing since October 3rd when they bottomed at 18.9 million barrels. The growth accentuates the potential for further bearish accumulations of crude oil supply.

Domestic crude oil production rose during the report week. Production reached 9.118 million barrels daily. This is a new high for output; production is approaching highs last seen in 1986. Crude oil imports rose during the week, moving up 365,000 barrels daily to 7.7 million barrels per day.

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Crude oil inputs to refineries rose 271,000 barrels per day; there were 16.6 million barrels per day of crude oil run to facilities. Most of the gain occurred in the Midwest. Elsewhere, inputs presented a mixed picture.

Refinery utilization grew to 95.4 per cent. Utilization has risen steadily since October 1 when only 86.7 per cent of capacity was in use. The Midwest saw the most intense usage, operating at 98.9 per cent. Refineries in the Rockies ran around 90.5 per cent of capacity – a 4.2 percentage point decline during the report week.

Total petroleum inventories netted gains of 16.3 million barrels against declines of 8.8 million barrels. Gasoline added 8.2 million barrels to supply. Gains were seen in every PAD District. The East Coast (+2.2 million barrels) and Gulf Coast (+2.9 million barrels) had the largest gains.

Demand for gasoline fell to 8.5 million barrels daily. This is probably an adjustment to the outsized demand numbers reported by EIA in recent weeks. Over a longer time horizon, gasoline demand is expected to falter because of changing demographics and greater fuel efficiencies. (Population growth could support the overall volume of gasoline demand.)

Distillate fuel oil stocks added 5.6 million barrels to inventory. There are 121.8 million barrels now available. Stocks are moving above the lower end of the five year range for the first time this year.

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Midwest distillate fuel oil supplies are at 25.2 million barrels, adding 1.5 million barrels to stock. National demand fell to 3.5 million barrels per day during the report week, contributing to the increase in supply.

Propane stocks fell 300,000 barrels. There are 79.2 million barrels in storage. Current demand is estimated at 1.3 million barrels per day.

 

Natural Gas

According to EIA: The net withdrawal reported for the week ending December 5 was 51 Bcf, 21 Bcf lower than the five-year average net withdrawal of 72 Bcf and 41 Bcf lower than last year’s net withdrawal of 92 Bcf. Working gas inventories as of December 5 totaled 3,359 Bcf, 186 Bcf (5.2%) lower than last year at this time and 351 Bcf (9.5%) lower than the five-year (2009-13) average.
The withdrawal was slightly higher than market expectations of 50 Bcf. Markets did not take this as bullish. On release of the Natural Gas Weekly Report, prices rose rapidly, adding about a dime to value. By the end of the Thursday session, however, prices had faded and at $3.61, were poised to break support. The next major support level may be found at $3.10.

EIA reports that production of dry natural gas set a single day record during the report week. Output exceeded 73 Bcf on Sunday, December 7th.

Traders are not treating the market bearishly, however. The most recent price decline was made on declining open interest. This suggests that longs are reducing positions, but shorts are not coming in to replace them.

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.Vol. PH 03 NO. 50

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