Crude Oil Rally Fails

  1. Bearish factors for WTI prices emerge
  2. Gasoline demand matches all-time high
  3. Gasoline price tops out
  4. Natural gas rally has stumbled

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse

 

 

062316

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

The rally in crude oil that has moved prices briefly over fifty dollars per barrel appears to be dissipating. The move to highs has consisted of short covering off the lows, dramatic improvement in US gasoline demand, temporary loss of some production in Canada and Nigeria and stubborn resistance to erosion of crude oil stockpiles. The economic situation in Venezuela, largely underreported in recent months, has been deteriorating. Oil production has not, as yet, been materially impacted, but further problems could undercut exports further supporting price.

The implications of the UK leaving the European Union (“Brexit”) have generally been expected to be bearish for oil prices. Markets have expected business activity to slow. The killing of an anti-Brexit member of Parliament has thrown expectations into chaos and added to volatility. The vote is set for June 23rd.

WTI crude oil shows a clear break of support at $46.30. Next support may be found at $43.25. If that level is broken, an extreme point at $35.25 cannot be disregarded. That extreme point is slightly more than a traditional 61.8 per cent Fibonacci retracement of the entire spring rally.

Gasoline continues to be the big story of US supply/demand. Data released for the week ending June 10, 2016 showed gasoline demand of 9.762 million barrels daily, precisely the level achieved on August 17, 2007 when the all-time demand record was set. Demand has achieved high levels throughout the spring as use has exceeded 9.5 million barrels daily in every week since April ended.  Stocks fell 2.6 million barrels daily.

Despite the strong demand and a modest reduction in stocks, prices have moved lower. Prices for spot futures topped on May 24th at 1.6664. They lost ground slowly since then, moving to $1.6186 on June ninth. The price drop has picked up steam since then, moving down toward support at $1.44. This is consistent with seasonal activity in which gasoline prices top around Memorial Day and move lower into autumn.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending June 10, 2016 were released by the Energy Information Administration.

Total commercial stocks of petroleum decreased 0.7 million net barrels during the week ending June 10th, 2016.

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

Crude oil supplies in the United States decreased to 531.5 million barrels, a draw of 0.9 million barrels.

Crude oil supplies decreased in two of the five of the PAD Districts. PAD District 1 (East Coast) crude oil stocks declined 1.7 million barrels and PADD 2 (Midwest) stocks fell 0.1 million barrels. PADD District 5 (West Coast) crude oil stocks increased 0.9 million barrels. Both PADD 3 (Gulf Coast) and PADD 4 (Rockies) crude oils stock were unchanged from the previous report week.

Cushing, Oklahoma inventories increased 0.9 million barrels to 66.5 million barrels.

Domestic crude oil production decreased 29,000 barrels daily to 8.716 million barrels per day.

Crude oil imports averaged 7.622 million barrels per day, a daily decrease of 83,000 barrels.

Refineries used 90.2 per cent of capacity, a decrease of 0.7 percentage points from the previous report week.

Crude oil inputs to refineries decreased 100,000 barrels daily; there were 16.317 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 143,000 barrels to 16.508 million barrels daily.

Total petroleum product inventories saw an increase of 0.2 million barrels from the previous report week.

Gasoline stocks decreased 2.6 million barrels; total stocks are 237.0 million barrels.

Demand for gasoline increased 194,000 barrels per day to 9.762 million barrels daily.

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Total product demand increased 1.061 million barrels daily to 20.840 million barrels per day.

Distillate fuel oil supply increased 800,000 barrels; total stocks are 152.2 million barrels.  National distillate demand was reported at 3.817 million barrels per day during the report week. This was a weekly decrease of 240,000 barrels daily.

Propane stocks increased 1.1 million barrels to 78.4 million barrels. Current demand is estimated at 1.019 million barrels per day, an increase of 89,000 barrels daily from the previous report week.

Natural Gas 

According to the Energy Information Administration:

Working gas in the Lower 48 states posted its ninth straight week of net injections. Net injections into storage totaled 69 Bcf during the storage report week, compared with the five-year (2011-15) average of 87 Bcf and last year’s net injection of 96 Bcf during the same week.

The surplus in storage compared with the five-year average declined from the previous week to 704 Bcf, and the surplus compared with year-ago levels decreased to 633 Bcf. The year-over-year storage surplus fell for the tenth consecutive week.

EIA noted that, with this report, storage exceeded three Tcf earlier than during any previous injection season.

The growth in underground storage should be seen as bearish for natural gas prices. Nonetheless, January futures are trading at a premium around sixty-six cents — less than a dollar. EIA says, “This marks the first time in [nine] weeks that the January futures contract premium over the spot price was less than $1. A diminishing carry is bullish. Support can be found at $2.4.

 

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