Some Think WTI Could Bottom in $20 Range

  1. Full storage at Cushing OK is in sight
  2. U.S. becomes global marginal crude oil producer
  3. Crude oil supplies reach 418 million barrels
  4. Natural gas storage appears adequate for the rest of winter

Al pic 2009_cropped

Alan Levine Chairman, Powerhouse


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


The Matrix

Speculation on the ultimate low crude oil price dominated market talk last week. A large American bank expects prices to bottom in the spring following an end to inventory builds and initiation of stock withdrawals. The bank argues that oversupply could cause WTI crude oil to fall, “perhaps as low as the $20 range for a while.”

And the data are indeed lining up bearishly. Near-capacity storage on the Gulf Coast has caused crude oil shippers to resort to Cushing, Oklahoma facilities as a backup for crude oil coming into the system. Supplies at Cushing stand at 42.6 million barrels.

Working storage capacity at Cushing is 70.8 million barrels. (Some analysts use “shell capacity” as the measure of available storage. This stands at 85 million barrels. This number, however, does not allow for temperature-related expansion of oil.) Fill rates in recent weeks have run about 300 thousand barrels daily. If Cushing continues to fill at recent rates, storage could approach capacity by the middle of May, 2015.

Burdened storage could lead to even greater weakness in crude oil prices and perhaps greater strength in both distillate and gasoline crack spreads.

The same American bank called the development of shale-based production “the most geopolitically disruptive oil market force in nearly half a century.” This is arguable. The replacement of the major oil companies by OPEC as the price maker in the early ‘70s and the subsequent overthrow of the Shah of Iran were at least as disruptive to the established order.

Nonetheless, the emergence of the United States as the marginal producer is a big deal and will certainly change the dynamics of the global oil trade. In particular, the United States has both a producer and a consumer constituency. This is not so for most other producers. This will impact markets in a way not possible by a country that has only production.


Supply/Demand Balances

Supply/demand data in the United States for the week ending February 6, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum rose 2.2 million net barrels during the week. The largest increase was in crude oil by far.

Gasoline, ethanol, K-jet, residual fuel oil and other oils had gains as well. Draws were reported for distillate fuel oil, and propane. Stocks of other oils dropped 1.4 million barrels.

Crude oil supplies in the United States increased to 417.9 million barrels, a gain of 4.9 million barrels. Stocks have been increasing regularly since late September, 2014 when they stood at 356.6 million barrels. The 17.2 per cent gain has vaulted supplies to record levels and cast a bearish tone on the crude oil markets. What few rallies there have been have lacked vigor and have not been sustained.

Stocks of crude oil rose in Every PAD District except the East Coast. Gulf Coast crude oil supplies rose 2.2 million barrels, increasing regional supply to 208.2 million barrels. This is well over the EIA estimate of storage capacity and is reflected in further increases at Cushing OK.

Cushing, Oklahoma inventories rose to 42.6 million barrels according to the week’s report. This was an increase of 1.2 million barrels for the report week.

Domestic crude oil production rose to 9.226 million barrels daily. This is a new high and is comparable to May, 1973. Crude oil imports fell to 7.3 million barrels per day.

Refineries utilized an additional 0.1 percentage points of capacity. They employed 90.0 per cent of capacity. This comes at a time when many facilities have been scheduled for maintenance.

Attractive margins apparently top turnaround demands. Refinery utilization averaged 84.8 per cent for the first week in February of the past ten years, 2005 through 2009. Utilization fell as low as 79.1 per cent in 2010.

Crude oil inputs to refineries were unchanged, adding only 20,000 barrels daily; there were 15.6 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, remained at 16.0 million barrels daily.

Total petroleum product inventories netted gains of 9.1 million barrels against declines of 7.0 million barrels. Gasoline added 2.0 million barrels to supply. PAD District I had an increase of 0.9 million barrels, the Gulf Coast put in another 1.2 million barrels.

Total product demand added 1.0 million barrels daily to 19.7 million barrels daily.

Demand for gasoline dropped 160,000 barrels per day. It is at 8.3 million barrels daily. Refinery production fell 379,000 barrels daily to 8.7.1 million barrels daily.

Distillate fuel oil lost 3.3 million barrels from supply. Stocks are 131.2 million barrels. National demand for the week was reported at 4.3 million barrels per day during the report week. This was a weekly increase of 616,000 barrels daily for the report week.

Propane stocks fell 1.4 million barrels. There are 65 million barrels in storage. There were only 27.9 million barrels in stock last year at this time. Current demand is estimated at 1.6 million barrels per day.

Natural Gas

According to EIA: Working gas in storage was 2,268 Bcf as of Friday, February 6, 2015, according to EIA estimates. This represents a net decline of 160 Bcf from the previous week. Stocks were 542 Bcf higher than last year at this time and 11 Bcf below the 5-year average of 2,279 Bcf.

The reduction in storage was well below the market’s expectations. Early estimates averaged 168 Bcf withdrawals. Analysts expected colder temperatures in the East to pull harder on storage than actually occurred. Above average temperatures in the West worked against this result.


EIA notes:

Increasing natural gas production has helped to displace some of the demand traditionally placed on storage during peak-use periods. Dry natural gas production has averaged 71.7 billion cubic feet per day (Bcf/d) since November 1, as reported by Bentek Energy, approximately 6.3 Bcf/d more than production for the same period last winter. This higher level of production is forecast to continue through the end of the heating season. EIA’s Short Term Energy Outlook forecasts that production will average 72.7 Bcf/d, February through March, 5.0 Bcf/d higher than the same period in 2014.

Regaining storage parity with the five-year average working gas storage volume and continued growing production leaves natural gas inventories in a strong position to meet demand for the remainder of the winter. EIA projects that end-of-March 2015 inventories will total 1,699 Bcf, 43 Bcf more than the five-year average, and more than double the 837 Bcf level of March 2014.



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