Weekly Energy Market Situation—December 26, 2023

Year-end Activity Slowdown Inhibits Oil Price Changes

International producer alignments shifting
U.S. steps up response to Red Sea Houthi attacks
Domestic supply situation eases
Natural gas price outlook remains bearish

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The Matrix

International news did not move petroleum prices significantly last week.

Angola has now severed its relations with OPEC. The African nation would not accede to production cuts imposed by OPEC. Its output is not enough to move the needle significantly, but the decision to leave the group has been seen as critical of Saudi Arabian leadership.

Angola joins Indonesia and Ecuador in dropping from the group. Whether this rises to a serious challenge to OPEC unity is unclear.

Brazil has announced its intention to join the cartel in January 2024. OPEC has been actively looking for new members. There is no indication, however, that Brazil would have to cut its production as part of the deal.

Threats to Red Sea shipping abated somewhat as cargos are being rerouted to avoid the area. The United States is reportedly assembling an international naval coalition to combat attacks in the region. The attacks by Houthi militants in Yemen are ostensibly in support of Hamas in the ongoing Gazan conflict and could cease if that war finally winds down.

Domestically, the U.S. Petroleum Balance Sheet for the Week Ending December 15, 2023, was moderately bearish. The supply situation in the United States eased as new data show a small increase in total stocks of crude oil and petroleum products.

Commercial crude oil inventories rose 2.9 million barrels during the report week. Crude oil supply is -0.7 percent below the 5-year average for this time of year.

Supply/Demand Balances

Supply/demand data in the United States for the week ending December 15, 2023, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose (⬆) 2.7 million barrels to 1.2620 billion barrels during the week ending December 15, 2023.

Commercial crude oil supplies in the United States were higher (⬆) by 2.9 million barrels from the previous report week to 443.7 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Down (⬇) 0.2 million barrels to 7.8 million barrels

PADD 2: Up (⬆) 0.7 million barrels to 112.7 million barrels

PADD 3: Up (⬆) 0.8 million barrels to 248.7 million barrels

PADD 4: Up (⬆) 0.6 million barrels to 25.1 million barrels

PADD 5: Up (⬆) 1.2 million barrels to 49.5 million barrels

Cushing, Oklahoma inventories were up (⬆) 1.7 million barrels from the previous report week to 32.5 million barrels.

Domestic crude oil production was higher (⬆) 200,000 barrels at 13.3 million barrels daily.

Crude oil imports averaged 6.750 million barrels per day, a daily increase (⬆) of 233,000 barrels. Exports increased (⬆) 350,000 barrels daily to 4.121 million barrels per day.

Refineries used 92.4 percent of capacity; 2.2 percentage points higher (⬆) than the previous report week.

Crude oil inputs to refineries increased (⬆) 403,000 barrels daily; there were 16.500 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased (⬆) 407,000 barrels daily to 16.883 million barrels daily.

Total petroleum product inventories decreased (⬇) by 0.2 million barrels from the previous report week, up to 818.3 million barrels.

Total product demand decreased (⬇) 293,000 barrels daily to 20.785 million barrels per day.

Gasoline stocks increased (⬆) 2.7 million barrels from the previous report week; total stocks are 226.7 million barrels.

Demand for gasoline decreased (⬇) 106,000 barrels per day to 8.754 million barrels per day.

Distillate fuel oil stocks increased (⬆) 1.5 million barrels from the previous report week; distillate stocks are at 115.0 million barrels. EIA reported national distillate demand at 3.823 million barrels per day during the report week, an increase (⬆) of 52,000 barrels daily.

Propane stocks decreased (⬇) by 2.2 million barrels from the previous report week to 93.7 million barrels. The report estimated current demand at 1.231 million barrels per day, an increase (⬆) of 31,000 barrels daily from the previous report week.

The gain in stocks of motor gasoline was almost as great, 2.7 million barrels. And distillate fuel oil added 1.5 million barrels to supply. But the situation for distillates remains tight. Inventories are 10.1 percent lower than the average of the past five years currently.

The problem is critical on the East Coast, where there are 28.6 million barrels in reserve. Last year, PADD I held 33.7 million barrels in store, and two years ago, there were 42.7 million barrels available in the area.

Natural Gas

The week before Christmas typically experiences low volume and small range for natural gas futures. This year did not disappoint.

The week ending December 22 settled at $2.476, only a penny and one-half below the close of the prior week. Spot futures ranged from a high of $2.604 to a low of $2.385 during the week.

This left prices modestly lower than the center of the price range since February 2023. During these eleven months, prices fell to $1.946 in April and topped at $3.63 in October.

This year prices have followed a long period of decline, from $10.028 in August 2022 before bottoming in April.

It is not surprising that prices should take time to stabilize after so dramatic a decline in so short a period of time. But the question that remains is where prices might travel next.

Technical analysis allows for some recovery. Stochastics have crossed positively at oversold levels but the Relative Strength Index is still pointed lower.

Market fundamentals, however, are not bullish. Heating Degree Days lag normal readings. And for the week ending December 14, the national produced 28 HDDs fewer than normal. This was particularly noticeable in the North Central states where the failure to create HDDs was about 55 HDDs.

Some more general economic shifts could relieve down pressure on prices. The Federal Reserve has announced they expect to lower rates three times in 2024. The market now expects a soft landing for the economy next year as well.

Bulls should remain cautious. EIA estimated production of dry gas at 105.8 Bcf/d for the week ending December 20. Last year, output was 101.6 Bcf/d, sustain a growth pattern through this year.

According to the EIA:

Net withdrawals from storage totaled 87 Bcf for the week ending December 15, compared with the five-year (2018–2022) average net withdrawals of 107 Bcf and last year’s net withdrawals of 82 Bcf during the same week. Working natural gas stocks totaled 3,577 Bcf, which is 280 Bcf (8%) more than the five-year average and 240 Bcf (7%) more than last year at this time.
According to The Desk survey of natural gas analysts, estimates of the weekly net change to working natural gas stocks ranged from net withdrawals of 73 Bcf to 96 Bcf, with a median estimate of 82 Bcf.

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