Oil Prices Open 2022 On a Bullish Note

  1. Petroleum futures contracts continued to exhibit strength
  2. Global supply concerns multiply
  3. ULSD prices could reach $3.00
  4. Natural gas hits its mark

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Alan Levine—Chairman, Powerhouse

(202) 333-5380

 

 

The Matrix

The first week of 2022 saw oil prices continuing the rally that began in Nov. 2021. Futures prices for the principal petroleum contracts reached $80.47 for WTI crude oil and $2.5001 for ULSD. RBOB touched $2.3895 before setting back slightly on the day.

This has naturally led to speculation that further advances remain possible. Underlying geopolitics appear to support that view.

The situation in Libya, already constrained by military action experienced further losses as a major pipeline suffered damage. Libya says 729,000 barrels per day were being produced. About one-half million additional barrels daily of Libyan crude remains unavailable to markets.

New supply anxieties are developing in Kazakhstan. The former Soviet republic produces about two million barrels of crude oil daily. Violence, reflecting economic insecurity, has resulted in the deployment of Russian troops and several deaths. Production at the Tenzig field was reduced by Chevron, its operator. Uncertainty for the future adds to the market’s bullish tone.

Other bullish elements in the supply outlook include OPEC’s ability to add only 90,000 barrels daily to the group’s supply. Saudi Arabia added to its output, shortfalls in Libya and Nigeria reduced the overall gain. The effort to restore production lost during the pandemic was frustrated by these actions.

OPEC+ agreed to add an additional 400,000 barrels per day to supply. There is considerable doubt that this can be achieved. Russia was not able to add to last month’s output, despite an increased quota from the group, suggesting current capacity may be topped out.

Technical charts are supporting a further advance in futures prices. Weekly GET (Gann Elliott Trader) charts for WTI point higher, offering an objective of $180. The same analysis says ULSD could see $3.00and RBOB, $3.2.

Propane, bottoming since the start of the year, is also expected to have a price spurt. GET proposes an objective of $1.55 during 2022.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ended Dec. 31, 2021, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose 10.2 million barrels during the week ended Dec. 31, 2021.

Commercial crude oil supplies in the United States decreased by 2.1 million barrels from the previous report week to 417.9 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Plus 0.2 million barrels to 8.4 million barrels

PADD 2: Plus 2.2 million barrels to 117.2 million barrels

PADD 3: Down 3.4 million barrels to 223.1 million barrels

PADD 4: Down 0.3 million barrels to 23.8 million barrels

PADD 5: Down 0.9 million barrels to 45.3 million barrels

 

Cushing, Oklahoma, inventories were up 3.4 million barrels from the previous report week to 37.3 million barrels.

Domestic crude oil production was unchanged from the previous report week at 11.8 million barrels daily.

Crude oil imports averaged 5.884 million barrels per day, a daily decline of 875,000 barrels. Exports fell 375,000 barrels daily to 2.554 million barrels per day.

Refineries used 89.8% of capacity; 0.1 percentage points higher than the previous report week.

Crude oil inputs to refineries increased 164,000 barrels daily; there were 15.867 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 19,000 barrels daily to 16.281 million barrels daily.

Total petroleum product inventories rose 10.2 million barrels from the previous report week.

Gasoline stocks increased 10.1 million barrels from the previous report week; total stocks are 232.8 million barrels.

Demand for gasoline rose by 739,000 barrels per day to 9.724 million barrels per day.

Total product demand decreased 2,553,000 barrels daily to 19.665 million barrels per day.

Distillate fuel oil stocks added 4.4 million barrels from the previous report week; distillate stocks are at 126.8 million barrels. EIA reported national distillate demand at 3.739 million barrels per day during the report week, a decrease of 312,000 barrels daily.

Propane stocks decreased 0.3 million barrels from the previous report week; propane stocks are at 65.7 million barrels. The report estimated current demand at 1.745 million barrels per day, a decrease of 1,000 barrels daily from the previous report week.

 

Natural Gas

Natural gas hit its mark in 2021. Production, consumption, and exports increased. Notably, gross exports reached new highs for the third year in a row. LNG outflows are expected to exceed those of Australia and Qatar by the end of 2022 as U.S. export capacity grows.

These expectations are in synch with the general growth in the American economy. They are reflected in technical analytic charts as well. GET (Gann Elliott Trader) weekly charts suggest that natural gas prices are now bottoming and could recover as 2022 advances. GET suggests a price objective of $7.8.

Natural gas hit its mark in 2021. Production, consumption, and exports increased. Notably, gross exports reached new highs for the third year in a row. LNG outflows are expected to exceed those of Australia and Qatar by the end of 2022 as U.S. export capacity grows.

These expectations are in synch with the general growth in the American economy. They are reflected in technical analytic charts as well. GET (Gann Elliott Trader) weekly charts suggest that natural gas prices are now bottoming and could recover as 2022 advances. GET suggests a price objective of $7.8.

According to the EIA:

Net withdrawals from storage totaled 31 Bcf for the week ending December 31, compared with the five-year (2016–2020) average net withdrawals of 108 Bcf and last year’s net withdrawals of 127 Bcf during the same week. Working natural gas stocks totaled 3,195 Bcf, which is 96 Bcf more than the five-year average and 154 Bcf lower than last year at this time.

 

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