Riding Along in My Automobile
- Retail gasoline prices are now more expensive than retail diesel prices.
- U.S. gasoline demand approaches the all-time record.
- ULSD futures prices challenge the lows of the year.
- Natural gas supplies are ample as summer winds down
Sincerely,
Elaine 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
For the first time in six years, the average retail price of gasoline in the U.S. was more expensive than the average price of retail diesel. How did this happen? Analysts have been writing the obituary of U.S. gasoline demand growth for years. And diesel is the fuel of emerging markets, the wellspring of new petroleum demand. Seasonal factors will most likely make this a short term phenomenon, but there is no denying the challenge to conventional wisdom about demand both at home and abroad.
U.S. gasoline demand peaked in August 2007. Of course, the economic collapse of 2008 took its toll. Our economy has since recovered, but the return of gasoline demand was more challenging. New CAFE standards require more efficient use of gasoline. Baby boomers are driving less, while teens would rather operate a smart phone than a car.
Then prices fell.
The combination of low price and a strengthening economy has Americans hitting the road. For the week ending July 17th, the EIA reported gasoline demand of 9.749, just 13,000 barrels per day shy of the all-time high. We are on track for a record year of miles driven according to the Federal Highway Administration.
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Strong diesel demand was expected to dominate. Globally, refiners reconfigured to maximize distillate output. To meet growing gasoline demand here and abroad, refiners will also produce diesel. U.S. distillate stocks continue to grow. The January low of $1.5890 is less than a nickel away. We remain bearish.
Supply/Demand Balances
Supply/demand data in the United States for the week ending July 17, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 2.9 million net barrels during the week ending July 17, 2015.
Builds were reported in stocks of K-Jet fuel, distillates, propane, and other oils. Draws were reported in stocks of RBOB, fuel ethanol, and residual fuel oil.
Crude oil supplies in the United States increased to 463.9 million barrels, a build of 2.5 million barrels.
Crude oil supplies increased in three of the five PAD Districts. PADD 1 (East Cost) stocks grew 0.4 million barrels. PADD 2 (Midwest) stocks increased 0.3 million barrels. PADD 3 (Gulf Coast) stocks rose 2.5 million barrels. PADD 4 (Rockies) crude oil stocks were unchanged from the previous report week while PADD 5 (West Coast) stocks experienced a decline of 0.7 million barrels.
Cushing, Oklahoma inventories increased to 57.9 million barrels, a build of 0.8 million barrels.
Domestic crude oil production decreased 4,000 barrels daily to 9.558 million barrels per day. This small decline came from Alaska; crude oil production in the Lower 48 was unchanged.
Crude oil imports averaged 7.941 million barrels per day, a daily increase of 0.587 million barrels.
Refineries used 95.5 per cent of capacity, an increase of 0.2 percentage points from the previous week.
Crude oil inputs to refineries increased 45,000 barrels daily; there were 16.870 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 50,000 barrels per day to 17.160 million barrels daily.
Total petroleum product inventories saw an increase of 0.4 million barrels. Gasoline stocks fell 1.7 million barrels; total stocks are 216.3 million barrels.
Total product demand grew 1.157 million barrels daily to 21.021 million barrels per day.
Demand for gasoline increased 346,000 barrels per day to 9.749 million barrels daily.
Distillate fuel oil supply gained 0.2 million barrels. Stocks are 141.5 million barrels. National demand was reported at 4.004 million barrels per day during the report week. This was a weekly increase of 0.539 million barrels daily.
Propane added 0.3 million barrels to supply. There are 87.7 million barrels in storage. Current demand is estimated at 1.101 million barrels per day, an increase of 210,000 barrels daily from the previous report week.
Natural Gas
According to the EIA: Working gas in storage was 2,828 Bcf as of Friday, July 17, 2015, according to EIA estimates. This represents a net increase of 61 Bcf from the previous week. Stocks were 622 Bcf higher than last year at this time and 81 Bcf above the 5-year average of 2,747 Bcf.
Seven Bcf was reclassified from working gas to base gas. The market interpreted the new flow of 68 Bcf as bearish. Injections this summer have storage levels comfortably within the 5 year range, and are keeping prices range bound. The warmest day of the year is in the rear view mirror for many parts of the country. We expect prices to move back to the $2.50’s, the lower end of prices.
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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. 29
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