Weekly Energy Market Situation—February 21, 2023

Oil Inventory Gains Ease Supply Concerns

Crude oil inventories add 16 million barrels
Refinery expansions delayed
Opportunities in winter 23-24 ULSD
Natural gas prices soften

Sincerely,

Alan Levine, Chairman

Powerhouse

(202) 333-5380

The Matrix

Crude oil inventories in the United States rose by 16.3 million barrels during the week ended February 10, 2023. The increase brought total stocks of crude oil to 471.4 million barrels. This year is proving to be one of inventory recovery.

Since the beginning of 2023, more than 50 million barrels of crude oil have been added to supplies. Some of the gain has come from transfers from the SPR. This oil went into global markets, contributing to easing prices.

One large investment bank has added to its estimate of 2023-24 demand, but finding a place for more crude oil may prove challenging. Refining has responded recently from years of underinvestment with closures and disrupted operations. And if demand does accelerate, strain on refining could increase.

Moreover, several substantial additions to global refining capacity are now delayed.

Work on refineries Dangote in Nigeria, and Mexico’s Dos Bocas (650 thousand barrels daily and 340 thousand barrels per day respectively) has been delayed by a year. The loss of nearly one million barrels of daily crude oil throughput could strain capacity. The bank does not expect a return to pre-pandemic operational capacities until 2024.

Moreover, several substantial additions to global refining capacity are now delayed.

These values could translate into more bullish price expectations for petroleum products. Elliott Wave analysis for RBOB indicates that $2.80 or even $3.00 plus are in range.

Prices for RBOB are now soft, consistent with the large crude oil build. A test of $2.27 and even $2.02 could precede a spring rally.
ULSD prices are now coming out of season. Spot ULSD futures are around $2.71. Procurement of ULSD for next winter is frequently best accomplished during the first quarter of the year. Next winter prices are backwardated, with January 2024 ULSD valued around $2.6250. Backwardation is bullish.

Supply/Demand Balances

Supply/demand data in the United States for the week ended February 10, 2023, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose (⬆) 19.2 million barrels to 1.258 billion barrels during the week ended February 10, 2023.

Commercial crude oil supplies in the United States were higher (⬆) by 16.3 million barrels from the previous report week to 471.4 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Down (⬇) 0.6 million barrels to 6.9 million barrels

PADD 2: Plus (⬆) 2.2 million barrels to 127.3 million barrels

PADD 3: Plus (⬆) 14.5 million barrels to 263.1 million barrels

PADD 4: Plus (⬆) 0.1 million barrels to 24.8 million barrels

PADD 5: Plus (⬆) 0.1 million barrels to 49.3 million barrels

Cushing, Oklahoma, inventories were up (⬆) 0.6 million barrels from the previous report week to 39.7 million barrels.

Domestic crude oil production was unchanged (=) from the previous report week at 12.3 million barrels daily.

Crude oil imports averaged 6.232 million barrels per day, a daily decrease (⬇) of 826,000 barrels. Exports increased (⬆) 246,000 barrels daily to 3.146 million barrels per day.

Refineries used 86.5% of capacity; 1.4 percentage points lower (⬇) than the previous report week.

Crude oil inputs to refineries decreased (⬇) 383,000 barrels daily; there were 15.027 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell (⬇) 280,000 barrels daily to 15.556 million barrels daily.

Total petroleum product inventories rose (⬆) by 2.9 million barrels from the previous report week, rising to 786.8 million barrels.

Total product demand decreased (⬇) 1.234 million barrels daily to 19.302 million barrels per day.

Gasoline stocks increased (⬆) 2.3 million barrels from the previous report week; total stocks are 241.9 million barrels.

Demand for gasoline decreased (⬇) 154,000 barrels per day to 8.274 million barrels per day.

Distillate fuel oil stocks decreased (⬇) 1.3 million barrels from the previous report week; distillate stocks are at 119.2 million barrels. EIA reported national distillate demand at 3.894 million barrels per day during the report week, an increase (⬆) of 132,000 barrels daily.

Propane stocks decreased (⬇) by 2.6 million barrels from the previous report week to 66.3 million barrels. The report estimated current demand at 1.032 million barrels per day, a decrease (⬇) of 821,000 barrels daily from the previous report week.

Natural Gas

Natural gas moved to the downside. After weeks of flat trading, Henry Hub spot futures slipped below support, settling for the week ended February 17 at $2.275 per MMBtu. The price break was not impressive, but reflected the effects of fewer CHDDs and higher production.

A withdrawal of 100 Bcf of natural gas from storage for the week ended February 10 was well below the median trade estimate of 110 Bcf. The cumulative failure of demand to reduce storage has increased the likelihood that the withdrawal season will end with more natural gas in storage than the average of the past five years, exerting more pressure on price.

Prices for spot physical natural gas dropped an enormous 41% over the month of January, a total decline of $2.26 per MMBtu. The fall in price was contra seasonal. Winter cold has been muted. January 2023 was reportedly the warmest since 2006. Sixteen percent fewer heating degree days were generated than the average of the ten years from 2013 to 2022.

Unusual circumstances explain much of the weakness in natural gas prices. The Department of Energy’s Short Term Energy Outlook, forecasts lower spot prices at Henry Hub persisting through 2024, hardly moving over $4.00 during the period.

Powerhouse discussed the likelihood of spot Henry Hub futures remaining in the $2.00 range in our Weekly Energy Market Situation of February 6, 2023. We reported on a study that said prices had spent 5 ½% of the time since 2000 below $2.50. That analysis put support around $2.15.

According to the EIA:

The net withdrawals from storage totaled 100 Bcf for the week ended February 10, compared with the five-year (2018–2022) average net withdrawals of 166 Bcf and last year’s net withdrawals of 195 Bcf during the same week. Working natural gas stocks totaled 2,266 Bcf, which is 183 Bcf (9%) more than the five-year average and 328 Bcf (17%) more than last year at this time. South Central region stocks exceed the five-year average by 178 Bcf (24%).

The average rate of withdrawals from storage is 19% lower than 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 1,715 Bcf on March 31, which is 183 Bcf higher than the five-year average of 1,532 Bcf for that time of year.

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