OPEC Members Hurt by Low Crude Oil Prices

  1. Saudi Arabia cutting consumer subsidies
  2. U.S. production resists the downside
  3. Balancing production and price remains elusive
  4. Natural gas may have put in a bottom

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse
 
2016-01-05_14-30-37
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 OPEC calculation – more production drives prices lower drives high-price (read US shale) producers out of business – appears to be foundering on the shoals of the resilient American producer.

The poorer OPEC members are in real financial distress and the richer OPEC members are reportedly selling bonds and assets and cutting consumer subsidies to manage budgets. Venezuela has fallen far short of its budgetary needs. Fuel subsidy cuts in Saudi Arabia aimed at helping it survive the price rout could also slow the country’s own demand growth next year.

Lower prices have not overcome slowing global demand. China’s energy consumption growth in 2015 was its lowest since 1998, according to the official news agency Xinhua.

High levels of production continue to support supply and depress prices. Saudi Arabia will not limit production. Iran has reportedly shipped over 25,000 pounds of uranium to Russia in partial fulfillment of the terms of limiting its nuclear program. This is another step toward allowing crude oil exports.

U.S. oil production, OPEC’s big target, resists the downside. Output peaked in April, 2015 at 9.4 million barrels daily. It has stalled since, but has stabilized north of nine million barrels per day.

Rebalancing—the process of lower production yielding higher prices—remains a future objective for the upstream industry.

The time line towards rebalance remains elusive. Rebalancing in 2016 is more a goal than a probability. Domestic production has proven to be resilient. This reflects improved capital efficiency, market incentives and new projects only now being brought on-stream.

Capital efficiency has appeared in the form of lower unit costs including a more rapid drilling pace and lower costs of oil field services. The Financial Community is optimistic that price will recover. On this basis, risk capital remains available.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending December 25, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum were unchanged from the previous report week.

Builds were reported in stocks of RBOB, K-jet fuel, distillates, and propane. Draws were reported in stocks of fuel ethanol, residual fuel oil, and other oils.

Crude oil supplies in the United States increased to 487.4 million barrels, a build of 2.6 million barrels.

Crude oil supplies increased in three of the five PAD Districts. PADD 2 (Midwest) crude oil stocks increased 1.7 million barrels, PADD 3 (Gulf Coast) stocks grew 1.1 million barrels, and PADD 5 (West Coast) crude oil stocks experienced a build of 0.5 million barrels. PADD 1 (East Coast) crude oil stocks experienced a draw of 0.2 million barrels and PADD 4 (Rockies) stocks fell 0.4 million barrels.

Cushing, Oklahoma inventories increased 0.9 million barrels to 63.0.

Domestic crude oil production increased 23,000 barrels daily to 9.202 million barrels per day.

Crude oil imports averaged 7.892 million barrels per day, a daily increase of 566,000 barrels.

Refineries used 92.6 per cent of capacity, an increase of 1.3 percentage points from the previous report week.

Crude oil inputs to refineries increased 214,000 barrels daily; there were 16.682 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, grew 245,000 barrels to 16.785 million barrels daily.

Total petroleum product inventories saw a decrease of 2.6 million barrels from the previous report week. Gasoline stocks increased 0.9 million barrels; total stocks are 221.4 million barrels.

Total product demand increased 693,000 barrels daily to 20.478 million barrels per day.

Demand for gasoline increased 210,000 barrels per day to 9.395 million barrels daily.

Distillate fuel oil supply increased 1.8 million barrels. National demand was reported at 3.633 million barrels per day during the report week. This was a weekly decrease of 363,000 barrels daily.

Propane stocks increased 0.1 million barrels to 97.7 million barrels. Current demand is estimated at 1.034 million barrels per day, a decrease of 292,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA:

Working gas in storage was 3,756 Bcf as of Friday, December 25, 2015, according to EIA estimates. This represents a net decline of 58 Bcf from the previous week. Stocks were 532 Bcf higher than last year at this time and 448 Bcf above the five-year average of 3,308 Bcf. At 3,756 Bcf, total working gas is above the five-year historical range.

Natural gas reached a low of $1.684 on December 18th. Subsequently it rallied more than seventy cents, reaching $2.387 before running into resistance. The gain of nearly 42 per cent was consistent with action counted with Elliott Waves. Elliott counts suggest a completed five wave down from $6.493 in February, 2014.

The rally developed despite continuing warmth. The week ending December 26th had below normal Heating Degree Days in most parts of the country. New England had 123 HDDs few than normal and the Middle Atlantic, even fewer, with a deficit of 125 HDDs below normal (-50 and -69 HDDs versus last year in the two regions.)

Further rally action will be needed to confirm a bottom. Resistance can be found at $2.46. Fibonacci retracements are $2.80 (23.6 %,) $3.503 (32.8 %,) and $4.072 (50.0 %.).

 

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