U.S. Supply Bearish, Overseas Expectations Bullish
- U.S. adds 13.4 million barrels to total product stocks
- U.S. ULSD demand grows with higher HDDs
- Propane stocks fall 4.5 million barrels per day
- HDDs exceed last year in New England and Mid-Atlantic
The Matrix
A disconnect between the U.S. oil industry and its international counterparts was rarely so clear as in market action following release of the Energy Information Administration’s (EIA’s) U.S. Petroleum Balance Sheet for the week ending January 6, 2017.
Data for the U.S. was extremely bearish. Petroleum added 13.4 million barrels to total stocks during the report week. And since December 23, total stocks have risen 19.5 million barrels. The increase reflects renewed growth in domestic production and expanded refinery use. Crude oil imports added 1.9 million barrels to supply in the report week too.
The domestic growth in stocks came about despite improved demand. In particular, EIA reported increased use of distillate fuel oil of more than 400,000 barrels daily, bringing total consumption to 3.2 million barrels per day. The gain may represent higher heating degree day (HDD) totals this year. As of January 7, the U.S. has generated 111 more HDDs than last year (the degree day year begins on July 1, 2016). Notably, New England leads last year by 172 degree days and the Mid-Atlantic states are 261 HDDs higher too.
Overseas, attention has focused on OPEC and the other signatories to the OPEC-non-OPEC agreement. Last week, Powerhouse noted that Saudi Arabia pledged a production cut of “at least 486,000 barrels per day.” Subsequently, the Kingdom said it had reduced output “below 10 million daily barrels” for January. This implies an even deeper cut than earlier announced. A further cut was promised for February.
Iraq has said it reduced output 170,000 barrels daily. It said it would cut an added 40,000 barrels per day. Moreover, Kuwait has reportedly reduced output by “more than 133,000 barrels daily,” focused on sales to Europe and North America.
The spate of bullish expectations overwhelmed the reality of U.S. supply. Release of the bearish EIA statistics did not lead to the sell-off one might expect. Prices rallied sharply, adding nearly $2 to the value of crude oil. Resistance lies above at $55.10 for WTI crude oil and $1.7650 for ULSD.
Supply/Demand Balances
Supply/demand data in the United States for the week ending January 6, 2017 were released by the EIA.
Total commercial stocks of petroleum increased 13.4 million barrels during the week ending January 6, 2017.
Builds were reported in stocks of gasoline, fuel ethanol and distillates. There were draws in stocks of K-jet fuel, residual fuel oil, propane and other oils.
Commercial crude oil supplies in the United States grew to 483.1 million barrels, an increase of 4.1 million barrels.
Crude oil supplies increased in two of the five PAD Districts. PADD 1 (East Coast) crude oil stocks expanded 0.5 million barrels and PADD 3 (Gulf Coast) stocks increased 5.8 million barrels. PADD 2 (Midwest) crude oil stocks decreased 0.6 million barrels, PADD 4 (Rockies) stocks fell 0.2 million barrels and PADD 5 (West Coast) stocks retreated 1.4 million barrels.
Cushing, Oklahoma, inventories decreased 0.6 million barrels from the previous report week to 66.9 million barrels.
Domestic crude oil production increased 176,000 barrels daily to 8.946 million barrels per day.
Crude oil imports averaged 9.052 million barrels per day, a daily increase of 1.869 million barrels. Exports rose 41,000 barrels daily to 727,000 barrels per day.
Refineries used 93.6% of capacity, an increase of 1.6 percentage points from the previous report week.
Crude oil inputs to refineries increased 418,000 barrels daily. There were 17.107 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 323,000 barrels daily to 17.296 million barrels daily.
Total petroleum product inventories saw an increase of 9.3 million barrels from the previous report week.
Gasoline stocks expanded 5.0 million barrels; total stocks are 240.5 million barrels.
Demand for gasoline increased 4,000 barrels per day to 8.470 million barrels daily.
Total product demand increased 681,000 barrels daily to 18.606 million barrels per day.
Distillate fuel oil supply increased 8.4 million barrels; total stocks are 170 million barrels. National distillate demand was reported at 3.198 million barrels per day during the report week. This was a weekly increase of 406,000 barrels daily.
Propane stocks fell 4.5 million barrels to 79.7 million barrels. Current demand is estimated at 1.591 million barrels per day, an increase of 215,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
Return of cold temperatures contributes to increased withdrawals from storage. Net withdrawals from storage totaled 151 Bcf, compared with the five-year (2012 – 2016) average net withdrawal of 167 Bcf and last year’s net withdrawal of 152 Bcf during the same week [for the week ending January 6, 2017]. Increased heating demand for natural gas contributed to the increased rate of withdrawals compared with the week ending December 30, 2016, when net withdrawals totaled 49 Bcf. Working gas stocks total 3,160 Bcf, which is 4 Bcf less than the five-year average and 363 Bcf less than last year at this time.
The recovery in prices has yet to fill the breakaway gap referred to in last week’s Energy Market Situation. Unless and until natural gas spot futures reach $3.69, the market should be seen as in a corrective rally before moving lower.
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