Oil Supply Still Stresses Bulls
- Three-month forecast of WTI moved below $50
- Libya producing 1 million barrels daily
- Global crude oil stocks at five-year average level appears out of reach
- Natural gas injections fail expectations
The Matrix
Oil price bulls continue to be frustrated by market realities. Large financial institutions have lowered their price forecasts. One bank has reduced its three-month projection to $47.50 from $55 per barrel for West Texas Intermediate (WTI). As noted here in the past, builds in U.S. inventories challenge the implications of lower prices despite the growing impact of American exports.
OPEC decided to allow Libya and Nigeria to produce without limit. Ironically, those nations have experienced unexpected success at rebuilding their supply. And in the United States, more current drilling should translate into additional production just when the OPEC-non-OPEC deal ends in March 2018.
The OPEC goal of “rebalancing”—crude oil inventories equal to the five-year average—seems now to be further deferred. There is no sign that OPEC-non-OPEC is considering deeper cuts in production, but such a move cannot be excluded if pressure on stocks continues.
Adding to the stress on price bulls, production disruptions are, for the first time, below January 2016 levels.
Libya is reportedly producing over one million barrels daily. This is its highest output level in four years. The country has exceeded a recently announced production target well in advance of schedule. The North African nation was producing around 1.6 million barrels per day before a civil war arose in 2011.
Another barrier to higher prices has been high supplies of gasoline. Imports from European refiners have slowed, reflecting concerns by importers that U.S. demand will fall. Gasoline demand fell 2.7% in first quarter 2017. This has, to some degree, been offset by export volumes from the United States. These barrels are largely servicing Latin America. Nonetheless, gasoline stocks are near the top of the 5-year range as competition from European refiners increases.
The most recent rally occurred because of a modestly bullish inventory report from the Energy Information Administration (EIA). Market action, however, has been slow. Technical indicators suggest it is a corrective move, preparatory to further gasoline weakness in the autumn.
Supply/Demand Balances
Supply/demand data in the United States for the week ending June 23, 2017, were released by the EIA.
Total commercial stocks of petroleum increased 0.8 million barrels during the week ending June 23, 2017.
Draws were reported in stocks of gasoline, fuel ethanol, distillates, residual fuel and other oils. Builds were reported in stocks of K-jet fuel and propane.
Commercial crude oil supplies in the United States increased to 509.2 million barrels, a build of 0.1 million barrels.
Crude oil supplies increased in three of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks grew 1.1 million barrels, PAD District 3 (Gulf Coast) crude oil stocks advanced 1.1 million barrels and PADD 4 (Rockies) crude oil stocks increased 0.1 million barrels. PAD District 2 (Midwest) crude oil stocks fell 1.0 million barrels and PADD 5 (West Coast) stocks decreased 1.2 million barrels.
Domestic crude oil production decreased 100,000 barrels daily to 9.250 million barrels per day.
Crude oil imports averaged 8.016 million barrels per day, a daily increase of 140,000 barrels. Exports rose 11,000 barrels daily to 528,000 barrels per day.
Refineries used 92.5% of capacity, a decrease of 1.5 percentage points from the previous report week.
Crude oil inputs to refineries decreased 262,000 barrels daily. There were 16.890 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 278,000 barrels daily to 17.216 million barrels daily.
Total petroleum product inventories saw an increase of 0.7 million barrels from the previous report week.
Gasoline stocks decreased 0.9 million barrels; total stocks are 241.0 million barrels.
Demand for gasoline fell 278,000 barrels per day to 9.538 million barrels daily.
Total product demand decreased 1.421 million barrels daily to 19.646 million barrels per day.
Distillate fuel oil supply fell 0.2 million barrels to 152.3 million barrels. National distillate demand was reported at 4.029 million barrels per day during the report week. This was a weekly decrease of 129,000 barrels daily.
Propane stocks rose 3.9 million barrels; total stocks are 58.5 million barrels. Current demand is estimated at 916,000 barrels per day, a decrease of 70,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
Weekly net injections continue to be smaller than the five-year average. Net injections into storage totaled 46 Bcf, compared with the five-year (2012 – 2016) average net injection of 72 Bcf and last year’s net injections of 41 Bcf during the same week.
For seven out of the last eight weeks, the weekly net injection has been smaller than the five-year average. This is likely a reflection of increased of storage levels above historical norms, combined with electric sector demand and relatively higher levels of natural gas exports. Working gas stocks total 2,816 Bcf, which is 181 Bcf more than the five-year average and 319 Bcf less than last year at this time.
The injection of only 46 Bcf was below expectations. One possibility was that imports from Canada reportedly lagged This plays into the bullish view that the market is undersupplied. An analysis of recent storage data showed that “over the last nine weeks, this state of undersupply has caused the surplus to fall by 120 Bcf from 307 Bcf at the end of April.”
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