Weekly Energy Market Situation, Feb. 24, 2014

I have attached the weekly Energy Market Situation for your information. It tells you that,

Oil prices rallied last week, reflecting continued cold weather.
Natural gas prices reached $6.40. On expiration, The March futures contract will be replaced by an April contract that is now valued $1.23 lower. This could supply support for prices in the weeks ahead.
Low storage levels of distillate fuel oil are price supportive. Prices for next winter are heavily discounted and could allow sellers of HO to establish prices around 14 cents below current levels.
Natural gas in storage stands at 1.4 Bcf. EIA now projects inventories will end the withdrawal season at 1.331 Bcf, the lowest end-of-season level since 2008.

Sincerely,
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 www.eia.doe.gov

Liquids

Oil prices continued to rally last week in response to difficult winter weather conditions. In particular, distillate fuel oil nearly filled the gap created at expiration of the February futures contract. The gap is filled at $3.1962. At its peak, the March HO contract printed $3.1848. It has since moved lower but there is no evidence as yet that the rally is at its end.

Natural gas prices exceeded expectations and reached $6.40 on the 20th of February. The March natural gas contract expires on Wednesday, February 26th. The April contract will become spot at a substantial discount. It is now trading $4.922, $1.23 below March. This difference could provide support to the contract in March.

Supply/Demand Balances

The Energy Information Administration’s weekly report on US Petroleum Balances was released for the week ending February 14, 2014.

Inventories of crude oil and products decreased 2.5 million barrels during the week.

Crude oil added one million barrels to storage. Storage in the Midwest fell 2.6 million barrels, reflecting the continuing drain at Cushing OK where 1.7 million barrels were taken from stocks. The availability of new pipelining alternatives in the region has contributed to the call on stocks from Cushing. Stocks are likely to return to the 20 million barrel level that characterized the beginning of this century.

Gulf Coast refiners added 2.5 million barrels to stock. Refinery utilization on the Gulf Coast fell 0.6 percentage points as crude runs fell in response to refinery maintenance. There is major work planned in Texas and Louisiana over the next several weeks.

Imports of crude oil reached 7.4 million barrels daily, a decline over the prior week of 508,000 barrels daily. Domestic production remained at 8.1 million barrels daily.

Distillate stocks fell 0.3 million barrels during the report week. Low storage levels are typical for this time of year as can be seen on the chart above, available as part of Powerhouse’s suite of oil supply and demand charts available on its web site, www.powerhouseTL.com. It is one reason for the price rally that usually occurs at this time of year. Low stocks and prices that typically have fallen following the New Year are an irresistible combination for those who wish to establish pricing for the year ahead.

The value of this idea can be seen in winter 2014-15 prices. At the close of business, Friday, February 21st, January 2015 HO futures priced at $2.9556. This is a 14.4 cent discount from current values. Buying a January, 2015 futures contract establishes a discounted value in a market so poorly supplied that a substantial reduction in market prices this year appears to have a low probability.

History supports this idea as well. A review of previous years shows that establishing annual HO prices around this time results in low prices for the year.

Distillate demand came in at 3.6 million barrels daily. Four weeks ago, demand was 4.5 million barrels per day. Demand has since fallen 20 per cent reflecting loss of demand due to weather.

Gasoline demand reached 8.0 million barrels daily during the report week. This extremely low level of demand lags last year by 408,000 barrels per day. It was a weekly decline of 295,000 barrels daily. Four weeks ago, gasoline demand stood at 4.5 million barrels daily. The drop is a measure of the severity of this winter’s weather. Stocks added one million barrels during the week.

Propane stocks fell 1.2 million barrels during the report week. Demand reportedly fell 336,000 barrels daily.

Natural Gas

According to the EIA: Working gas in storage was 1,443 Bcf as of Friday, February 14, 2014, according to EIA estimates. This represents a net decline of 250 Bcf from the previous week. Stocks were 975 Bcf less than last year at this time and 741 Bcf below the 5-year average of 2,184 Bcf.

The storage data continue to keep the NYMEX at or near five-year highs despite Thursday’s lower settle. One analyst noted, “These 200-plus withdrawal amounts are huge. There’s no other way to put it … The storage data are incredibly supportive, as we are already at last year’s end-of-season storage amount,” This is very supportive of price.

From the Department of Energy: Very cold temperatures in early January led to new record-high withdrawals of natural gas from storage in a season already characterized by larger-than-normal storage withdrawals. Several more days of brutal cold came in the following weeks of January with working natural gas storage withdrawals exceeding 200 billion cubic feet (Bcf) for three of the weeks during the month. For the second month in a row, the forecast end-of-March 2014 working inventory has been revised downward to reflect recent very high withdrawals. EIA now projects inventories will end this heating season at 1,331 Bcf, the lowest end-of-season level since 2008.

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. 08