US Crude Stocks Fall Again

  1. Crude oil stocks fell for sixth consecutive week.
  2. Refinery utilization reaches 93%, high for 2016
  3. Gasoline stocks on East Coast grow to 230 million barrels
  4. Propane demand nears seasonal lows
  5. Additions to natural gas storage slow

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse

2016-07-05_17-16-03

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

Crude oil stocks in the United States fell for the sixth consecutive time during the week ending June 24, 2016. Inventories are now 526.6 million barrels, three per cent below the high reached on April 29th. This bullish sign reflects diminution of U.S. crude oil production which fell to a recent low of 8.662 million barrels. As discussed in previous issues of the Market Outlook, however, recent WTI crude oil prices hovering just below $50 are inducing owners of DUCs to return to operations, potentially capping prices around current levels.

Another reason for falling crude oil stocks can be found in product demand and refinery operations. Gasoline demand remains at a very high level. During the Report week ending June 24, total demand rose to 21.149 million barrels daily. Gasoline use ran at 9.709 million barrels per day, slightly below the all-time high reported in the previous EIA supply/demand balance.

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The strength of domestic crude oil demand has bearish implications for petroleum products. Strong demand induces both imports of crude oil for refineries and products to supplement domestic refining.  Imports of gasoline in particular have exploded with the most recent data putting imports at more than 900 thousand barrels daily, nearly a third of total product imports.  (“Other Oils” comprised about half of product intake.)

Refiners’ demand for crude oil to meet petroleum product demand accounted for 93 per cent of U.S. refinery capacity, its highest level seen in 2016. And this translated into gasoline output of 10.274 million daily barrels for the Report week.

Despite near-record demand, gasoline added 1.4 million barrels to stocks. This was the net between an addition of 3.9 million barrels on the East Coast and declines everywhere else in the country. The stock build in the most populous region of the United States is weighing on price. Gasoline has lost about a dime since June 24. Weakness shows in gasoline crack spreads too. A break of $14.25 opens the way to $12.85.

Supply/Demand Balances

Supply/demand data in the United States for the week ending June 24, 2016 were released by the Energy Information Administration.

Total commercial stocks of petroleum decreased 1.0 million net barrels during the week ending June 24th, 2016.

Builds were reported in stocks of gasoline, fuel ethanol, propane, and other oils. Draws were reported in stocks of K-jet fuel, distillates and residual fuel oil.

Crude oil supplies in the United States decreased to 526.6 million barrels, a draw of 4.1 million barrels.

Crude oil supplies decreased in all five PAD Districts. PAD District 1 (East Coast) crude oil stocks declined 0.4 million barrels, PADD 2 (Midwest) stocks fell 2.7 million barrels, PADD 3 (Gulf Coast) stocks decreased 0.5 million barrels, PADD 4 (Rockies) stocks declined 0.1 million barrels, and PADD District 5 (West Coast) crude oil stocks fell 0.5 million barrels.
Cushing, Oklahoma inventories decreased 1.0 million barrels to 66.5 million barrels.

Domestic crude oil production decreased 55,000 barrels daily to 8.622 million barrels per day.

Crude oil imports averaged 7.555 million barrels per day, a daily decrease of 884,000 barrels.

Refineries used 93.0 per cent of capacity, an increase of 1.7 percentage points from the previous report week.

Crude oil inputs to refineries increased 190,000 barrels daily; there were 16.695 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 312,000 barrels daily to 17.032 million barrels daily.

Total petroleum product inventories saw an increase of 3.1 million barrels from the previous report week.

Gasoline stocks increased 1.4 million barrels; total stocks are 239.0 million barrels.

Demand for gasoline decreased 106,000 barrels per day to 9.709 million barrels daily.

Total product demand increased 1.138 million barrels daily to 21.149 million barrels per day.

Distillate fuel oil supply decreased 1.8 million barrels; total stocks are 150.5 million barrels.  National distillate demand was reported at 3.998 million barrels per day during the report week. This was a weekly increase of 96,000 barrels daily.
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Propane stocks increased 2.5 million barrels to 82.1 million barrels. Current demand is estimated at 726,000 barrels per day, a decrease of 285,000 barrels daily from the previous report week.

Natural Gas

According to the Energy Information Administration:

The implied net flow [of natural gas] into storage totaled 42 Bcf during the storage report week, compared with the five-year (2011–15) average of 78 Bcf and last year’s net injection of 73 Bcf during the same week.

EIA also reported in the Weekly Natural Gas Storage Report a non-flow-related adjustment that lowered working gas by five Bcf for the week ending June 24. Inventory adjustments may occur because of reclassifications between working and base gas, operational balancing agreements, or engineering assessments of natural gas in a storage facility.

The difference between the current surplus in storage compared with the five-year average declined from the previous week to 637 Bcf, and the surplus compared with year-ago levels decreased to 582 Bcf. The year-over-year storage surplus fell for the 12th consecutive week.

Below-expectation injection rallied the futures market. Round number resistance at $3.00 was challenged, but not breached. This is not consistent with storage fills about forty per cent below last year. Powerhouse continues to look at $3.16 as the price objective for spot futures natural gas. (See our Weekly Energy Situation for June 10, 2016.)

 

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.

Powerhouse is a registered affiliate of Coquest, Inc.

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