The fever broke last week and cash oil prices fell, reducing basis which at its peak was reportedly 45 cents for ULSD in NY Harbor.
Crude oil prices are focusing on $100, notwithstanding growing US production. Product exprorts and reduced crude oil imports are contributing to the continuning strength in crude oil prices.
RBOB prices are testing resistance around $2.84. A break of resistance opens the way to filling a price gap from late August. The gap would be filled at $2.9850.
Natural gas in underground storage is just 3 Bcf higher than last year’s end-of-season value of 1,683 Bcf.
Alan Levine
Chairman, Powerhouse
Statistics Source: Energy Information Administration “Weekly Petroleum Status Report” available at www.eia.doe.gov
The Matrix
Last week’s petroleum market was characterized by falling basis for petroleum products. At their peak, ULSD cash prices exceeded futures by 45 cents. Diffs stood at 3-6 cents as the week ended.
Propane experienced the same thing. Resupply at Conway and warmer temps at both Conway and Mt. Belvieu brought cash down at least 17 cents.
The broader economy has opened the year with lackluster statistics. January hiring was slow, retail sales stumbled and auto sales fell. Manufacturers noted weaker business conditions.
The polar vortex took the brunt of the blame. The economy added only 75,000 jobs in December and did little better in January, tacking on another 113,000 in January. Sales of automobiles fell 3.1 per cent in January.
Notwithstanding the weather, WTI futures crude oil prices continue to focus on $100 per barrel. Growing domestic production has replaced imports to some degree, but the balance of supply and demand has not moved prices materially lower. And technical analysis of energy futures prices is supportive of price as well.
Elliott wave patterns suggest crude oil may be entering a fourth wave downward correction. This could move prices lower, perhaps to $96. A final up thrust, again moving over $100, could follow.
Interestingly, RBOB gasoline futures had started a normal winter decline late in December. Prices moved from about $2.84 to $2.59 early in January, reflecting the same polar vortex being blamed for a weaker economy. In February, however, prices have recovered, testing $2.84. And refinery turnarounds are now in full swing, further limiting gasoline availabilities.
Few products have had the price ride of ULSD. Futures prices bottomed around $2.83 in November. By the end of January, they reached $3.37. The March futures contract became spot at $3.00. It has since begun the move higher to fill the resulting price gap at $3.1962. ULSD typically rallies in March, and this move seems consistent with that pattern.
Supply/Demand Balances
The Energy Information Administration’s weekly report on US Petroleum Balances was released for the week ending February 7, 2014.
Inventories of crude oil and products increased 2.0 million barrels during the week.
Crude oil added 3.3 million barrels to storage. Gulf Coast refiners added 3.8 million barrels to stock, some of which probably came from Cushing OK, where inventories lost 2.7 million barrels. In all, Midwest storage fell 3.4 million barrels.
Imports of crude oil added to the gain. Imports added 1.042 million barrels over the previous week, moving to 7.9 million barrels daily.
Domestic production recovered, moving to 8.1 million barrels daily.
Distillate stocks fell 0.7 million barrels during the report week. At the same time, Distillate demand came in at 3.7 million barrels daily, a weekly reduction of 265,000 barrels daily. This is in addition to the prior week’s decline. Over the two weeks, demand has fallen about 850,000 barrels daily – reflecting weather-related bottlenecks in transportation.
Gasoline demand was 8.3 million barrels daily during the report week. This continues the low levels normally seen in winter. It was a weekly decline of 128,000 barrels daily. Stocks fell 1.9 million barrels during the week.
Propane stocks fell 2.9 million barrels during the report week. Demand reportedly added 376,000 barrels daily.
Natural Gas
According to the EIA:
Cooler weather drives another larger-than-average net withdrawal. The net withdrawal reported for the week ending February 7 was 237 Bcf, 75 Bcf larger than the 5-year average of 162 Bcf and 85 Bcf larger than last year’s net withdrawal of 152 Bcf. Working gas inventories totaled 1,686 Bcf, just 3 Bcf more than last year’s season-ending value of 1,683 Bcf on March 31, 2013. Current inventories are 863 Bcf (33.9%) less than last year at this time, 631 Bcf (27.2%) below the 5-year (2009-13) average, and 331 Bcf (16.4%) below the 5-year minimum.
From the Short Term Energy Outlook: EIA expects natural gas marketed production will grow at an average rate of 2.2% in 2014 and 1.2% in 2015. Rapid Marcellus production growth is causing natural gas forward prices in the Northeast to fall even with or below Henry Hub prices outside of peak-demand winter months. Consequently, some drilling activity may move away from the Marcellus back to Gulf Coast plays such as the Haynesville and Barnett, where prices are closer to the Henry Hub spot price. EIA projects Gulf of Mexico production will increase by 1.7% in 2014 before falling 2.3% in 2015.
Futures prices for natural gas responded to the Vortex too. They topped $5.72 at expiration of the February contract and then moved lower to around $4.56. Technically, this seems to have been a correction. Subsequently, a recovery has moved values back to $5.60. Resistance remains above at $5.74 and improved weather expectations may limit gains above that level.
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. 07
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