Oil Pricing Continues in Tight Range

  1. Volatile geopolitical news contrasts with stable crude oil prices
  2. U.S. expected to become a net exporter of oils
  3. Gasoline demand has fallen flat
  4. Constraints on Venezuelan crude oil exports could support distillate fuel oil pricing.

Al pic 2009_cropped

Sincerely, Alan Levine Chairman of Powerhouse
(202) 333-5380

The Matrix

Oil prices remained remarkably stable in January, trading in a narrow price range. This seems at odds with the wide range of geopolitical and operational activities facing the global oil markets as 2019 opened. The Department of Energy produced analysis saying that the United States is likely to become a net energy exporter in 2020, a first since 1953. This reflects growth in crude oil output while domestic demand is expected to decline. Outflows of natural gas and petroleum products will add to net exports.

Gasoline demand did not expand despite growing stocks and prices under pressure. U.S. EIA estimated that gasoline consumption was flat to lower in the first ten months of 2018 compared with 2017. Ironically, fuel use has not grown notwithstanding annual economic growth of over three per cent and the creation of nearly five million non-farm jobs since 2017. Flat demand is in line with slower traffic growth in the past two years. And slower gasoline demand growth contributed to lower prices in recent months. Evidence of a slowing global economy became an important brake on prices. The decision to defer sanctions on Iranian crude oil exports lifted one of the last price-supportive actions available to market pricing, adding to downside pressure.

Newly imposed sanctions on Venezuelan crude oil exports could lead to a modest reversal of bearish price features in the market as domestic refiners seek to re-balance crude oil slates. Currently, shale oil production in the United States is yielding light, sweet crude oil. This is desirable feedstock for gasoline, the product expected to suffer flat to lower demand. Venezuela, by contrast, provides heavy oil, rich in sulfur to refining. Such crude oil is the major feedstock for diesel refining. Heavy, sour crude oils in short supply point towards higher prices for middle distillate fuels.


Supply/Demand Balances

Supply/demand data in the United States for the week ending January 25, 2019 were released by the Energy Information Administration.

Total commercial stocks of petroleum decreased 4.8 million barrels during the week ending January 25, 2019.

There were builds in stocks of fuel ethanol, K-jet fuel, and other oils. There were draws in stocks of gasoline, distillate fuel, residual fuel oil, and propane.

Commercial crude oil supplies in the United States increased 0.9 million barrels from the previous report week to 445.9 million barrels.

Crude oil supplies increased in all five of the PAD Districts. PADD 1 (East Coast) stocks rose 0.7 million barrels, PADD 2 (Midwest) stocks expanded by 1.1 million barrels, and PADD 5 (West Coast) stocks advanced 0.4 million barrels. PADD 3 (Gulf Coast) stocks declined 0.9 million barrels and PADD 4 (Rockies) stocks fell 0.3 million barrels.

Cushing, Oklahoma inventories decreased 0.1 million barrels from the previous report week to 41.2 million barrels.

Domestic crude oil production was unchanged from the previous report week at 11.9 million barrels per day.

Crude oil imports averaged 7.083 million barrels per day, a daily decrease of 1.108 million barrels per day. Exports fell 91,000 barrels daily to 1.944 million barrels per day.

Refineries used 90.1 per cent of capacity, a decrease of 2.8 percentage points from the previous report week.

Crude oil inputs to refineries decreased 586,000 barrels daily; there were 16.463 million barrels per day of crude oil run to facilities.

Gross inputs, which include blending stocks, declined 526,000 barrels daily to 16.759 million barrels daily.

Total petroleum product inventories fell 5.7 million barrels from the previous report week.

Gasoline stocks decreased 2.2 million barrels from the previous report week; total stocks are 257.4 million barrels.

Demand for gasoline increased 696,000 barrels per day to 9.564 million barrels per day.

Total product demand decreased 645,000 barrels daily to 20.815 million barrels per day.

Distillate fuel oil stocks decreased 1.1 million barrels from the previous report week; distillate stocks are at 141.3 million barrels. National distillate demand was reported at 4.122 million barrels per day during the report week. This was a weekly decrease of 546,000 barrels daily.

Propane stocks decreased 3.6 million barrels from the previous report week; propane stock are 60.2 million barrels. Current demand is estimated at 1.611 million barrels per day, a decrease of 131,000 barrels daily from the previous report week.


Natural Gas

According to the Energy Information Administration:

Net withdrawals from storage totaled 173 Bcf for the week ending January 25, compared with the five-year (2014–18) average net withdrawals of 150 Bcf and last year’s net withdrawals of 126 Bcf during the same week. Working gas stocks totaled 2,197 Bcf, which is 328 Bcf lower than the five-year average and 14 Bcf lower than last year at this time.

The average rate of net withdrawals from storage is 23% 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 13.7 Bcf/d for the remainder of the withdrawal season, total inventories would be 1,308 Bcf on March 31, which is 328 Bcf lower than the five-year average of 1,636 Bcf for that time of year.


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