U.S. Oil Supply Situation Reacts to Year-End Pressures

  1. Huge build in distillate fuel oil supplies could signal soft prices
  2. Crude oil exports reach 4.5 million barrels daily
  3. Product demand falls sharply
  4. Natural gas in storage remains in the 5-year historical range

Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse
 
 

The Matrix

Petroleum inventories in the United States usually experience a decline in December.  Prices soften as supplies are placed on the market. This phenomenon reflects actions taken to avoid year-end property taxes imposed in Texas and Louisiana.

January is a month with special importance for distillate fuel oil sellers. Many fuel marketers start to consider price expectations for the year to come, in particular for the winter of 2020-2021. Powerhouse has reviewed the annual pattern of distillate futures prices over many years. The low for next-winter ULSD usually occurs in the first quarter (which begins now.)  This is especially so in distillate fuel oils.

Variation From the Average NYMEX Futures Price 2008 – 2018 Source: Powerhouse, CME February ULSD is now trading around $2.03; December is valued at $1.98. The market is in backwardation with February trading at a premium of five cents over December. Backwardation is a bullish indicator, lending support to the idea of a first-quarter buy.

EIA’s U.S. Petroleum Balance Sheet for the week ending December 27, 2019 showed crude oil supplies falling 11.5 million barrels daily. The decline was found overwhelmingly in PADD III. And much of the reduction could be traced to exports. Regional detail is not available, but total exports of crude oil and petroleum products reached 10.1 million barrels daily. Crude oil exports reached 4.5 million barrels per day.

Distillate fuel oil added 8.8 million barrels to inventory. Stocks stand at 133.7 million barrels. Supplies are higher than they were a year ago, but remain well below the five-year average.

Refinery operations took a substantial part of the crude oil decline, notwithstanding implications for tax exposure. Inputs of crude oil to domestic refineries reached 17.3 million barrels daily, a week-on-week gain of 303,000 daily barrels. Gulf Coast facilities accounted for a gain of 213,000 barrels per day.

Refinery activity grew nationally, except for a modest decline in the Rockies. Facilities ran at 94.5 percent of capacity. Operations on the Gulf Coast came in at 97.7 percent of capacity.

This spate of activity could result in product inventory builds over the next several weeks and softer prices.  U.S. product demand fell sharply during the week, which adds to that possibility. Total demand fell 1.4 million barrels per day and gasoline consumption fell below nine million barrels daily.

Product supplies appear to be sufficient going into 2020. This comes at a time when the international supply situation has become more uncertain. An Iranian response to the killing of a senior military official by the U.S. remains to be seen.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending Dec. 27, 2019, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell by 0.9 million barrels during the week ending Dec. 27, 2019.

Commercial crude oil supplies in the United States decreased by 11.5 million barrels from the previous report week to 429.9 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Down 0.2 million barrels to 9.8 million barrels
PADD 2: Down 0.4 million barrels to 125.9 million barrels
PADD 3: Down 11.1 million barrels to 219.3 million barrels
PADD 4: Down 0.5 million barrels to 22.9 million barrels
PADD 5: Plus 0.7 million barrels to 52.0 million barrels

Cushing, Oklahoma inventories fell 1.5 million barrels from the previous report week to 36.3 million barrels.

Domestic crude oil production was unchanged from the previous report week at 12.9 million barrels daily.

Crude oil imports averaged 6.352 million barrels per day, a daily decrease of 357,000 barrels. Exports rose 1.065 million barrels daily to 4.462 million barrels per day.

Refineries used 94.5 percent of capacity, up 1.2% from the previous report week.

Crude oil inputs to refineries increased 303,000 barrels daily; there were 17.283 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 221,000 barrels daily to reach 17.768 million barrels daily.

Total petroleum product inventories rose 8.6 million barrels from the previous report week.

Gasoline stocks increased 3.2 million barrels daily from the previous report week; total stocks are 242.5 million barrels.

Demand for gasoline fell 341,000 barrels per day to 8.961 million barrels per day.

Total product demand decreased 1.391 million barrels daily to 19.922 million barrels per day.

Distillate fuel oil stocks increased 8.8 million barrels from the previous report week; distillate stocks are at 133.7 million barrels. EIA reported national distillate demand at 3.055 million barrels per day during the report week, a decrease of 1.159 million barrels daily.

Propane stocks decreased 0.2 million barrels from the previous report week; propane stocks are 88.2 million barrels. The report estimated current demand at 1.285 million barrels per day, a decrease of 566,000 barrels daily from the previous report week.

 

Natural Gas

According to EIA:

Working gas in storage was 3,192 Bcf as of Friday, December 27, 2019, according to EIA estimates. This represents a net decrease of 58 Bcf from the previous week. Stocks were 484 Bcf higher than last year at this time and 38 Bcf below the five-year average of 3,230 Bcf. At 3,192 Bcf, total working gas is within the five-year historical range.

 

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Powerhouse is a registered affiliate of Coquest, Inc.

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