Oil Markets Reaching Significant Price Levels

  1. Crude oil prices ranged over $100 in 2020
  2. WTI futures holding support
  3. Distillate demand struggles
  4. OPEC+ supply loss could support prices

 

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Alan Levine—Chairman, Powerhouse
(202) 333-5380

 

The Matrix

The interplay of supply and demand in the 2020 pandemic year has focused a serious debate on emerging price trends. Demand has fallen, particularly in the aviation sector but more generally among all transportation fuels.

Supply rode a roller coaster. Shale oil production in the United States collapsed with the economy and with largely successful OPEC+ control of overseas crude oil supply.

The chart of 2020 WTI futures prices shows a very broad price range. Crude oil futures topped during the week of January 10th at $65.65, and fell to negative $40.32, recorded late in April. Prices have since climbed back to positive levels, spending many weeks around $40.

An effective Covid-19 vaccine has since been developed. Epidemiologists have warned that a period of intense virus positivity could precede wide vaccine deployment. Markets have apparently discounted the implications of further damage to the economy and are holding support. WTI, now trading around $48.25, has support near $42.50. Resistance is at $49.50 with $54.50 above that.

Refiners’ management of distillate fuel oil balances has reduced a large overstock to a more manageable level. Stocks of distillate fuels have fallen back into the range of the past five years.

Distillate demand had been moving higher as 2020 began. Usage reached 4.478 million barrels daily in February 2019. Demand had been as high as 4.7 million barrels per day in February, 2007. Distillate fuel oil demand has been losing ground since then.

Prices reached a low for 2020 at $0.5800 in April. As Christmas week ended, prices reached $1.5130, just below resistance. A break of resistance opens the way to $1.7185.

OPEC+ is scheduled to add about a half million barrels to daily crude oil supply in January, 2021. February HO crack spreads have moved higher in recent weeks. They are now at $14.36, compared to their September 2020 low of $9.24. The impact of another Covid-19 surge has yet to be evaluated by the market.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ended December 18, 2020, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell by 10.7 million barrels during the week ended December 18, 2020.

Commercial crude oil supplies in the United States decreased by 0.6 million barrels from the previous report week to 499.5 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Down 0.8 million barrels to 10.8. million barrels
PADD 2: UNCH at 146.4 million barrels
PADD 3: Plus 1.1 million barrels to 272.1 million barrels
PADD 4: UNCH from the previous report week at 24.5 million barrels
PADD 5: Down 1.0 million barrels to 45.7 million barrels
Cushing, Oklahoma inventories were UNCH from the previous report week at 58.4 million barrels.

Domestic crude oil production was unchanged from the previous report week at 11.0 million barrels daily.

Crude oil imports averaged 5.564 million barrels per day, a daily increase of 140,000 barrels. Exports increased 472,000 barrels daily to 3.099 million barrels per day.

Refineries used 78.0% of capacity, down 1.1% from the previous report week.

Crude oil inputs to refineries decreased 169,000 barrels daily; there were 14.014 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 197,000 barrels daily to 14.347 million barrels daily.

Total petroleum product inventories fell 10.1 million barrels from the previous report week.

Gasoline stocks decreased 1.1 million barrels daily from the previous report week; total stocks are 237.8 million barrels.

Demand for gasoline rose 47,000 barrels per day to 8.022 million barrels per day.

Total product demand decreased 247,000 barrels daily to 19.088 million barrels per day.

Distillate fuel oil stocks increased 172,000 barrels from the previous report week; distillate stocks are at 148.9 million barrels. EIA reported national distillate demand at 4.174 million barrels per day during the report week, an increase of 172,000 barrels daily.

Propane stocks decreased 2.3 million barrels from the previous report week; propane stocks are 81.6 million barrels. The report estimated current demand at 1.292 million barrels per day, a decrease of 379,000 barrels daily from the previous report week.

 

Natural Gas

The International Energy Agency expects demand for liquified natural gas to be the most rapidly growing fossil fuel. IEA notes that the growth will be greater in China, India and other emerging markets.

According to the EIA:

Working [natural] gas in storage was 3,574 Bcf as of Friday, December 18, 2020, according to EIA estimates. This represents a net decrease of 152 Bcf from the previous week. Stocks were 278 Bcf higher than last year at this time and 218 Bcf above the five-year average of 3,356 Bcf. At 3,574 Bcf, total working gas is within the five-year historical range.

 

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