Records, Records Everywhere, but Traders Barely Blink
- U.S. inventories of crude oil and refined products hit a record high
- Commercial stocks of oil in OECD countries at record highs
- Middle Eastern oil production rose to a record high
- Natural gas-fired electricity generation expected to reach record levels in 2016
Elaine Levin, President
Powerhouse
(202) 333-5380
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
Petroleum storage is filling up in the U.S and abroad. The EIA reported total commercial inventories of crude oil and products in the U.S. rose by 7.1 million barrels to a record high 1.38 billion barrels. U.S. product demand has been strong, but with the driving season demand typically peaking at this time, inventories could continue to rise further.
Stocks are swelling overseas as well. The Paris based IEA reported this week that OECD commercial inventories rose by 13.5 million barrels in May to a record high of 3.074 billion barrels. Preliminary data suggest another 96 million barrel increase in June.
Record production from Middle East is contributing to the overhang of inventories globally. The IEA reported Middle Eastern crude production hit a record 31.5 million barrels per day. Rising production from Saudi Arabia, Iraq and Iran has returned the region’s market share back to 35%, a number not seen since the late 1970’s.
The crack spread, the measure of refining profits, has been losing value. Refiners received more than $20.00 for turning a barrel of crude into a barrel of gasoline as recently as mid-May. With refiners processing crude this summer at high rates, RBOB crack spreads traded as low as $12.00 as recently as last week. Elliott wave analysis suggests that the gasoline crack could trade under $10.00.
The distillate crack spread has traded a range between $13.50 and $15.00 since mid-May. An unexpected 4.1 million build in distillate inventories pushed the spread through support. Typically the heat crack spread bottoms around this time as traders anticipate fall refinery maintenance.
So far, prices have not collapsed in the face of bearish headlines. U.S gasoline demand has been impressive. The U.S. labor market is growing and equity markets are making record highs. But, with growing global petroleum inventories and economic uncertainty post Brexit, an uptick in U.S. production could bring the oil bears out of hibernation.
Supply/Demand Balances
Supply/demand data in the United States for the week ending July 08, 2016 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 7.1 million net barrels during the week ending July 08, 2016.
Builds were reported in stocks of gasoline, K-jet fuel, distillates, residual fuel oil, propane, and other oils. A draw was reported in stocks of fuel ethanol.
Crude oil supplies in the United States decreased to 521.8 million barrels, a draw of 2.5 million barrels.
Crude oil supplies decreased in three of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks declined 0.6 million barrels, PADD 3 (Gulf Coast) stocks decreased 1.5 million barrels, and PADD 5 (West Coast) stock fell 2.0 million barrels.
PAD Districts 2 (Midwest) increased 0.5 and PADD 4 (Rocky Mountain) had a 1.0 build.
Cushing, Oklahoma inventories decreased 0.2 million barrels to 63.9 million barrels.
Domestic crude oil production increased 57,000 barrels daily to 8.485 million barrels per day.
Crude oil imports averaged 7.841 million barrels per day, a daily decrease of 522,000 barrels.
Refineries used 92.3 per cent of capacity, a decrease of 0.2 percentage points from the previous report week.
Crude oil inputs to refineries decreased 143,000 barrels daily; there were 16.544 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 22,000 barrels daily to 16.905 million barrels daily.
Total petroleum product inventories saw an increase of 9.6 million barrels from the previous report week.
Gasoline stocks increased 1.2 million barrels; total stocks are 240.1 million barrels.
Demand for gasoline decreased 84,000 barrels per day to 9.671 million barrels daily.
Total product demand decreased 604,000 barrels daily to 19.447 million barrels per day.
Distillate fuel oil supply increased 4.1 million barrels; total stocks are 153.0 million barrels. National distillate demand was reported at 3.206 million barrels per day during the report week. This was a weekly decrease of 727,000 barrels daily.
Propane stocks increased 2.6 million barrels to 87.4 million barrels. Current demand is estimated at 735,000 barrels per day, an increase of 5,000 barrels daily from the previous report week.
Natural Gas
According to the Energy Information Administration:
Net injections into storage totaled 64 Bcf during the storage report week, compared with the five-year (2011-15) average of 77 Bcf and last year’s net injection of 95 Bcf during the same week. Working gas stocks currently total 3,243 Bcf, which is 586 Bcf above the five-year average and 507 Bcf above last year at this time. After two consecutive weeks of withdrawals for the Pacific and South Central regions, both regions showed net injections this week.
The hottest weather of the year is expected to hit next week for a significant amount of the country. According to the Capital Weather Gang, “It is too soon to say exactly how hot temperatures will be, but initial indications are that the central United States may face some of the country’s hottest weather with respect to normal. Record heat is certainly a possibility, although exactly how many records fall and where won’t come into focus for several more days.” The EIA’s Short Term Energy Outlook reports that natural gas-fired electricity generation in the U.S. should set a record this year, hitting 3.8 million megawatt hours per day. We remain bullish.
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