Let’s Make a Deal
- Resolution to the latest Greek debt.crisis is reached
- A deal is made that could return Iranian crude to the market
- Petroleum prices are testing support
- More natural gas than coal is used as fuel for U.S. electricity generationElaine Levin, President
Powerhouse
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
Two major international deals were reached last week, and petroleum prices responded bearishly. On Monday, Greek lawmakers approved austerity measures demanded by the Eurozone leaders. This paved the way for the third rescue package for Greece, avoiding a default and preserving Greece’s place within the European Union. Tuesday, a long awaited deal between Iran and the P5+1 (US, France, China, Germany, UK, Russia) was reached. The deal limits Iran’s nuclear program and ends various sanctions that limit oil exports.
On the surface, the Greek deal should have been bullish for prices. Stability is positive for petroleum demand and the euro currency. The market remains skeptical that the deal will allow for a recovery in the Greek economy. The threat that Greece will ultimately exit the euro zone is still alive. The U.S. dollar continues to rally, adding downward pressure to oil prices.
The Iranian nuclear deal is more straightforward. There is now the potential of additional oil on the market, a market already well supplied by both the U.S. and Saudi Arabia. But hurdles remain. The U.N. Security Council needs to vote to incorporate the agreement. More challenging will be the approval of the U.S. Congress. Analysts believe that with final approvals in place, new Iran production will not be seen until 2016. But Iran’s floating storage is readily available, and Reuters reported Friday that 2 million barrels are already headed to Asia after sitting in Iranian waters for months. “It is a milestone following a months-long build-up of idling crude.”
By the end of the week, WTI futures were flirting with $50.00 support. ULSD futures broke $1.66, a price that has held since March. Next support is the January low of $1.5890, which was the low of the sell-off that began last year. RBOB prices lost ground this week, breaking back under $2.00.
Supply/Demand Balances
Supply/demand data in the United States for the week ending July 10, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 2.8 million net barrels during the week ending July 10, 2015.
Builds were reported in stocks of RBOB, K-Jet Fuel, distillates, propane, and other oils. Draws were reported in stocks of fuel ethanol and residual fuel oil.
Crude oil supplies in the United States increased to 461.4 million barrels, a draw of 4.3 million barrels.
Crude oil supplies increased in two of the five PAD Districts. PADD 2 (Midwest) stocks increased 1.0 million barrels. PADD 4 (Rockies) crude oil stocks grew 0.5 million barrels. PADD 1 (East Coast) crude oil stocks experienced a decrease of 1.9 million barrels. PADD 3 (Gulf Coast) stocks declined 2.1 million barrels. PAD District 5 (West Coast) storage fell 1.8 million barrels.
Cushing, Oklahoma inventories increased to 57.1 million barrels, a build of 0.4 million barrels.
Domestic crude oil production decreased 42,000 barrels daily to 9.562 million barrels per day.
Crude oil imports averaged 7.354 million barrels per day, a daily increase of 38 thousand barrels.
Refineries used 95.3 per cent of capacity, an increase of 0.6 percentage points from the previous week.
Crude oil inputs to refineries increased 229,000 barrels daily; there were 16.825 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 181,000 barrels per day to 17.110 million barrels daily.
Total petroleum product inventories saw an increase of 7.1 million barrels. Gasoline stocks rose 0.1 million barrels; total stocks are 218.0 million barrels.
Total product demand grew 0.618 million barrels daily to 19.864 million barrels per day.
Demand for gasoline decreased 129,000 barrels per day to 9.404 million barrels daily.
Distillate fuel oil supply gained 3.8 million barrels. Stocks are 141.3 million barrels. National demand was reported at 3.465 million barrels per day during the report week. This was a weekly decrease of 0.328 million barrels daily.
Propane added 1.7 million barrels to supply. There are 87.4 million barrels in storage. Current demand is estimated at 0.891 million barrels per day, an increase of 98,000 barrels daily from the previous report week.
Natural Gas
According to the EIA: Working gas in storage was 2,767 Bcf as of Friday, July 10, 2015, according to EIA estimates. This represents a net increase of 99 Bcf from the previous week. Stocks were 653 Bcf higher than last year at this time and 73 Bcf above the 5-year average of 2,694 Bcf.
A milestone for natural gas demand was reported by the EIA this week. “U.S. generation of electricity fueled by natural gas exceed coal-fired generation for the first time in record in April 2015.”
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 04 NO. 28
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