Bearish Supply Data Meets Bullish Market Reaction
- EIA and IEA produce conflicting supply forecasts for 2015
- Higher prices do not indicate a bottom in place
- Commercial US oil added more than ten million barrels to inventory
- Unusually high natural gas withdrawal
Click to enlarge table.
Table covers crude oil and principal products. Other products, including residual fuel oil and “other oils” are not shown, and changes in the stocks of these products are reflected in “Total Petroleum Products.” Statistics Source: Energy Information Administration “Weekly Petroleum Status Report” available at www.eia.doe.gov
The Matrix
The Energy Information Administration forecasted lower oil prices through 2016. EIA expects US crude oil prices to average $54.58 in 2015. A small increase to $62.75 was projected for 2016. EIA anticipates the US benchmark crude oil price will average $46 during January and February, rising through the rest of the year.
The agency expects global oil inventories to grow in 2015. This will contribute to an imbalance between supply and demand through 2016. EIA expects global stocks to average 92.97 million barrels daily against consumption of 92.39 million barrels per day in 2015. The supply surplus could reach 90 thousand barrels daily in 2016.
The International Energy Agency released a more bullish report. The Paris based IEA suggested that non-OPEC oil producers will increase output this year at a slower rate than previously predicted. In its monthly oil market report released this week, the agency reduced forecasts for growth in non-OPEC production by 350,000 barrels per day. “A price recovery—barring any major disruption—may not be imminent, but signs are mounting that the tide will turn.”
Extremely bearish inventory data (see discussion below) were met with a bullish reaction. Prices finished the week higher for both gasoline and crude. The novelty of a stronger close has made many wonder if a bottom is in place. A higher weekly close has only happened twice in the last 16 weeks for RBOB and WTI futures. ULSD futures have not seen a positive week since October 31, 2014. Prices need to continue the upward movement to consider this week’s action more than just relieving the oversold condition in the market.
Supply/Demand Balances
Supply/demand data in the United States for the week ending January 9, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum rose 10.2 million net barrels during the week. The largest increases were in gasoline and distillate fuel oil. Crude oil inventories rose. Draws were reported for residual fuel oil and propane. Stocks of other oils dropped 1.2 million barrels.
Crude oil supplies in the United States increased to 387.8 million barrels a gain of 5.4 million barrels. This change continues the remarkable growth in crude oil stocks being recorded in the country.
Gulf Coast crude oil supplies rose 1.2 million barrels. Stocks of crude oil rose in PAD Districts in the Midwest (+2.3 million barrels) and on the West Coast where inventories gained 2.8 million barrels of crude.
Cushing, Oklahoma inventories rose to 33.9 million barrels according to the week’s report. This was an increase of 1.8 million barrels for the report week. Stocks at Cushing have been growing since October 3rd when they bottomed at 18.9 million barrels. This is the result of building stocks on the Gulf Coast where inventories have reached 195.6 million barrels.
Domestic crude oil production gained, rising to 9.2 million barrels daily. Crude oil imports recovered during the week, moving up 0.6 million barrels daily to 7.5 million barrels per day.
Crude oil inputs to refineries fell; there were 15.893 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, declined to 16.2 million barrels daily.
Refinery utilization eased to 91.0 per cent of capacity. Facilities backed off throughout the country, except in the Rockies.
Total petroleum product inventories netted gains of 13.0 million barrels against declines of 2.7 million barrels. Gasoline added 3.2 million barrels to supply. Gains were seen on the West Coast and in the Midwest. Declines were recorded elsewhere.
Demand for gasoline grew 66,000 barrels per day to 8.9 million barrels daily. Refinery production added 424,000 barrels daily, reaching 9.1 million barrels daily.
Distillate fuel oil stocks added substantially to inventory. Stocks were 139.9 million barrels up 2.9 million barrels. National demand for the week was reported at 3.9 million barrels per day during the report week. This was a weekly increase of 1.1 million barrels daily for the report week.
Propane stocks declined 0.8 million barrels. There are 74.9 million barrels in storage. Current demand is estimated at 1.2 million barrels per day.
Natural Gas
According to EIA: Working gas in storage was 2,853 Bcf as of Friday, January 9, 2015, according to EIA estimates. This represents a net decline of 236 Bcf from the previous week. Stocks were 282 Bcf higher than last year at this time and 113 Bcf below the 5-year average of 2,966 Bcf.
Natural gas prices lifted off lows around $2.80 on Tuesday, January 13th, reflecting changes in the supply/demand situation. New York City utilities imposed limits on interruptible customers. In addition, expectations of withdrawals well above the average of 191 Bcf added to near-term price strength. A gap can be found between $3.444 and $3.351.
Reduced crude oil prices have called the economics of many international LNG projects into question. The impact on planned LNG export terminals in the United States has been less because the pricing of U.S. LNG exports is not tied to crude oil as is the case overseas. Exports from Cameron Parish, Louisiana are scheduled to start by year-end.
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. 55
Was this memo helpful? We’d like your feedback. Please respond to [email protected] Copyright © 2014 Powerhouse, All rights reserved.
