Weekly Energy Market Situation, Dec. 7, 2020

Considering U.S. As World Crude Oil Pricing Standard

U.S. crude oil gaining global role
Exports of U.S. crude oil expanding
WTI being incorporated into Brent price basket
Natural gas stocks nearly 300 Bcf higher than the 5-year average

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

The Matrix

Trade relationships shift over time as some countries alter their reliance on other nations. As 2020 ends, sources and uses of petroleum are changing in response to economic structures among trading partners.

The Weekly Energy Market Situation (November 30, 2020) has focused on China and its rising demand for oil and LNG. This is reflected in growth in exports from the United States. The change in the role of U.S. crude oil on the world stage has other implications as well.

Shale oil has become an important part of the domestic crude oil slate. President Obama lifted a long-standing ban on exports of U.S. crude oil in 2015. Exports of domestic crude oil reached 3.456 million barrels per day in the most recent EIA supply/demand report.

Crude Oil Exports 1990 – 2020 Source: EIA

Global crude oil pricing has relied on Dated Brent since the 1980s. Brent was initially defined as output from the East Shetland Basin located off Scotland. This source of Brent has been diminishing in recent years. A broader range of crudes has since been introduced into the Brent calculation, including Forties and Ekofisk. Even the volume of this basket of crudes has been diminishing. This introduces concerns over the efficacy of Brent as the global crude oil pricing standard.

A proposal to add WTI to the Brent average is now under consideration. It would broaden the global oil price. More significantly it recognizes the arrival of WTI as a key swing crude in the world.

The Weekly Energy Market Situation, November 30, 2020, noted the growth of strong Asian demand and the growth of U.S. exports of oil to China in response.

These shifts in supply and demand have developed as Asia emerges as a major user of oil with implications for future markets for the United States. They emerge during a time of great uncertainty over the possible course of Covid-19 as vaccines are broadly distributed. A winter of expanding infections and then a time of national vaccinations lies ahead.

Supply/Demand Balances

Supply/demand data in the United States for the week ended November 27, 2020, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose by 0.1 million barrels during the week ended November 27, 2020.

Commercial crude oil supplies in the United States decreased by 0.7 million barrels from the previous report week to 488.0 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Plus 0.4 million barrels to 10.4 million barrels
PADD 2: Plus 0.6 million barrels to 146.9 million barrels
PADD 3: Plus 0.6 million barrels to 262.2 million barrels
PADD 4: Down 0.3 million barrels to 24.0 million barrels
PADD 5: Down 0.6 million barrels to 44.6 million barrels

Cushing, Oklahoma inventories were down by 0.3 million barrels from the previous report week to 59.6 million barrels.

Domestic crude oil production was up 100,000 barrels per day to 11.1 million barrels daily.

Crude oil imports averaged 5.399 million barrels per day, a daily increase of 171,000 barrels. Exports increased 625,000 barrels daily to 3.456 million barrels per day.

Refineries used 78.2% of capacity, down 0.5% from the previous report week.

Crude oil inputs to refineries decreased 251,000 barrels daily; there were 14.012 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 90,000 barrels daily to 14.563 million barrels daily.

Total petroleum product inventories rose 0.2 million barrels from the previous report week.

Gasoline stocks increased 3.5 million barrels daily from the previous report week; total stocks are 233.6 million barrels.

Demand for gasoline fell 156,000 barrels per day to 7.973 million barrels per day.

Total product demand decreased 688,000 barrels daily to 18.468 million barrels per day.

Distillate fuel oil stocks increased 3.2 million barrels from the previous report week; distillate stocks are at 145.6 million barrels. EIA reported national distillate demand at 3.789 million barrels per day during the report week, a decrease of 386,000 barrels daily.

Propane stocks decreased 0.8 million barrels from the previous report week; propane stocks are 95.7 million barrels. The report estimated current demand at 1.010 million barrels per day, a decrease of 161,000 barrels daily from the previous report week.

Natural Gas

Global reliance on Henry Hub pricing is developing. The Chicago Mercantile Exchange reported a record high 74 LNG cargoes in January 2020. This entailed exports of 8.1 Bcf. South Korea was the largest importer (17%) with the UK (16%) And Spain (15%.)

According to the EIA:

The net [natural gas] withdrawals from storage totaled 1 Bcf for the week ending November 27, compared with the five-year (2015–19) average net withdrawals of 41 Bcf and last year’s net withdrawals of 22 Bcf during the same week. Working natural gas stocks totaled 3,939 Bcf, which is 290 Bcf more than the five-year average and 343 Bcf more than last year at this time.

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