Bullish Price Indicators Are Expanding

  1. Weather patterns turn cold and snowy
  2. Crude oil production reacts to Saudi restraint
  3. ULSD and WTI futures are in backwardation
  4. Natural gas tries to break $3.00

Al pic 2009_cropped

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

 

The Matrix

Powerhouse’s Weekly Energy Market Situation tends to focus on petroleum demand, supply of crude oil globally and in the United States, refining activity and import/export trends. But none of these factors can come close to the interest our readers have for weather, especially in the winter heating season.

This winter, heating degree days are likely to build as the polar vortex splits. Ordinarily, the polar vortex is a weather feature that keeps winter’s cold air well to the north. This year, according to meteorologists, “a split in the vortex may lead to weeks of wild weather.” Upper atmospheric levels have been warming, directing freezing polar air south. Blizzards are one result of such changes. And deep snows have already created a challenging winter in many places in the United States, dramatically different from last winter when snow was a rare commodity.

The bullish impact of a colder winter is one factor that has already brought WTI past $58.00. ULSD has tried $1.75. International factors are tending higher as well. The general expectation for higher crude oil prices now runs toward $65 per barrel. ULSD’s objective is around $2.00.

The shape of the forward ULSD price curve has turned bullish. Three months ago, forward prices suggested the reverse. At that time, nearby ULSD futures prices were cheaper than more deferred months, a condition known as contango or carry.

That situation has changed reflecting a host of factors influencing the price of ULSD. Currently, nearby prices are more expensive than later months. This is the condition known as backwardation. Backwardation indicates buyers are concerned about obtaining supply in the near term. They are aggressively bidding up the price.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ended January 29, 2021, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose by 2.9 million barrels during the week ended January 29, 2021.

Commercial crude oil supplies in the United States decreased by 1.0 million barrels from the previous report week to 475.7 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Down 0.2 million barrels to 11.1 million barrels
PADD 2: Down 1.5 million barrels to 135.5 million barrels
PADD 3: Down 1.0 million barrels to 255.6 million barrels
PADD 4: UNCH from the previous report week at 24.3 million barrels PADD 5: Plus 1.7 million barrels to 49.2 million barrels

Cushing, Oklahoma inventories were down 1.5 million barrels from the previous report week to 48.7 million barrels.

Domestic crude oil production was UNCH from the previous report week at 10.9 million barrels daily.

Crude oil imports averaged 5.064 million barrels per day, a daily increase of 1.443 million barrels. Exports increased 128,000 barrels daily to 3.483 million barrels per day.

Refineries used 82.3% of capacity, up 0.6% from the previous report week.

Crude oil inputs to refineries decreased 80,000 barrels daily; there were 14.641 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 111,000 barrels daily to 15.135 million barrels daily.

Total petroleum product inventories rose 3.9 million barrels from the previous report week.

Gasoline stocks increased 4.5 million barrels daily from the previous report week; total stocks are 252.2 million barrels.

Demand for gasoline fell 63,000 barrels per day to 7.770 million barrels per day.

Total product demand decreased 1.154 million barrels daily to 18.528 million barrels per day.

Distillate fuel oil stocks were UNCH from the previous report week; distillate stocks are at 162.8 million barrels. EIA reported national distillate demand at 4.198 million barrels per day during the report week, a decrease of 103,000 barrels daily.

Propane stocks decreased 1.6 million barrels from the previous report week; propane stocks are 56.1 million barrels. The report estimated current demand at 1.490 million barrels per day, a decrease of 98,000 barrels daily from the previous report week.

 

Natural Gas

Natural gas prices have been following those of liquids in recent days without the same enthusiasm. Spot natural gas futures prices bottomed at $2.24 late in December. They have since reached $2.98, retarded perhaps because the withdrawal of gas from underground storage lagged comparable data for both the five-year and last year’s period. Nonetheless, a solid break of $3.00 opens the way to $3.40.

According to the EIA:

The net [natural gas] withdrawals from storage totaled 192 Bcf for the week ending January 29, compared with the five-year (2016–2021) average net withdrawals of 146 Bcf and last year’s net withdrawals of 155 Bcf during the same week. Working natural gas stocks totaled 2,689 Bcf, which is 198 Bcf more than the five-year average and 41 Bcf more than last year at this time.

The average rate of withdrawals from storage is the same as the five- year average so far in the withdrawal season (November through March). If the rate of withdrawals from storage matched the five-year average of 11.2 Bcf/d for the remainder of the withdrawal season, the total inventory would be 2,004 Bcf on March 31, which is 198 Bcf higher than the five-year average of 1,806 Bcf for that time of year.

 

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