Higher Inventories Meet Higher Prices

  1. Prices rally on higher stocks
  2. Refiner demand for crude oil falls
  3. OPEC members stress over output levels
  4. Natural gas withdrawals below average

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse

2016-02-08_15-21-24

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

 

The Matrix

Mounting oil inventories in the United States were the focus of petroleum action during the week ending February 5, 2016.

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Crude oil supply reached five hundred million barrels and expectations of falling refinery throughputs should add to the total. Gasoline stocks moved higher as well.

Total inventories topped two billion barrels. These data should be bearish for oil prices, but their release was met with a powerful rally that added nearly $2.50 to the value of WTI Crude Oil futures.

The US Dollar fell two per cent versus the Yen. This reflected concerns that the Federal Reserve would not be able to raise interest rates again this year. A cheaper dollar can invite new buying of crude oil and thus support prices.

It is hard to find bullish news to support a rally in the current environment. Contrarians will take notice of this cognitive dissonance. Serious oversupply has created calls by some of the world’s major oil producers for agreement to cut output. Russia, in particular, has sought consensus to no avail.

Saudi Arabia has thus far resisted cutting output. The kingdom claims it will rely on its formidable financial reserves to retain market share while it attempts to diversify its economy. It is planning to sell shares in Saudi Aramco and make its vast mineral holdings available for development. It is seeking also to privatize parts of its national health care system and its schools.

So much bearish activity in the petroleum sector has brought WTI crude oil futures briefly into the ‘twenties, but these lows have not held. A rally on bearish data is not enough to claim a bottom is in place in the oil sector, but seasonal factors are moving in that direction.

WTI crude oil futures, basis March, face resistance at $34.82. Exceeding that level would make the likelihood of a bottom greater. Bollinger Bands are starting to “pinch”, an early sign of price expansion.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending January 29, 2016 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 9.5 million net barrels during the week ending January 29, 2016.

Builds were reported in stocks of RBOB, fuel ethanol, K-jet fuel, and residual fuel oil. Draws were reported in stocks of distillates, propane, and other oils.

Crude oil supplies in the United States increased to 502.7 million barrels, a build of 7.8 million barrels. This is a record amount of crude oil in commercial storage, government data show.

Crude oil supplies increased in four of the five PAD Districts. PADD 1 (East Coast) crude oil stocks increased 0.7 million barrels, PADD 2 (Midwest) stocks grew 1.2 million barrels, PADD 3 (Gulf Coast) crude oil stocks increased 3.6 million barrels, and PADD 5 (West Coast) stock expanded 2.3 million barrels. Crude oil stocks in PADD 4 (Rockies) were unchanged from the previous report week.

Cushing, Oklahoma inventories increased 0.8 million barrels to 64.2 million barrels.

Domestic crude oil production decreased 7,000 barrels daily to 9.214 million barrels per day.

Crude oil imports averaged 8.256 million barrels per day, a daily increase of 647,000 barrels.

Refineries used 86.6 per cent of capacity, a decrease of 0.8 percentage points from the previous report week.

Crude oil inputs to refineries decreased 24,000 barrels daily; there were 15.615 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 132,000 barrels to 15.701 million barrels daily.

Total petroleum product inventories saw a decrease of 1.7 million barrels from the previous report week.

Gasoline stocks increased 5.9 million barrels; total stocks are 254.4 million barrels. Demand for gasoline decreased 600,000 barrels per day to 8.341 million barrels daily.

Total product demand decreased 1.945 million barrels daily to 19.156 million barrels per day.

Distillate fuel oil supply decreased 0.8 million barrels. National distillate demand was reported at 3.524 million barrels per day during the report week. This was a weekly decrease of 481,000 barrels daily.

Propane stocks decreased 5.6 million barrels to 78.1. million barrels. Current demand is estimated at 1.867 million barrels per day, a decrease of 77,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA:

Withdrawals from [natural gas] storage are smaller than average but greater than last year. Net withdrawals from working gas totaled 152 Bcf, falling 8% below the 5-year (2011–15) average net withdrawal of 165 Bcf. Still, the withdrawal was 40 Bcf larger last year’s pull for the same storage week. This marks the fifth consecutive week of triple-digit storage withdrawals in the Lower 48 states. Working gas levels remain relatively high, with a surplus of 490 Bcf (20%) compared with last year at this time, and 445 Bcf (18%) higher than the 5-year average.

The reduction in natural gas in storage continues a pattern of less-than-anticipated use, reflecting warmer weather thus far. Projections through the balance of winter are very uncertain; meteorologists are pointing to a shift in global weather patterns away from El Nino warmth.

Prices are under pressure. The sub-par withdrawals mask the growth in in power sector use. Low price has induced a record 24.6 Bcf per day this winter. Last year’s cold saw 20.9 Bcf per day used in power. The thirty year average is only 18.8 Bcf per day.

Prices fell to new lows for 2016 on release of the EIA’s data. Support lies below at $1.684.

 

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