Bakken Field produces One Million Barrels per Day

Summary of this week’s newsletter.

1. Iraq holds center stage. The second largest crude producer in OPEC may experience even greater restraints on output than are now in force.

2. Crude oil stocks rose modestly at Cushing OK, the first gain since April 4. The drain of Cushing may now be ending as volumes reach levels more typical before the explosion of shale oil and gas production in the United states.

3. North Dakota’s Bakken field reached output of more than one million barrels daily. It is of the few such giant fields that include Ghawar in Saudi Arabia, Prudhoe Bay and Eagle Ford.

4. Natural gas storage has increased at a record pace for the past five weeks.

 

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Sincerely,
Alan Levine
Chairman, Powerhouse
 

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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

Events in the Middle East continued to hold center stage last week. And with them concerns are growing that OPEC’s second largest crude oil producer may experience even greater restraints on output than are now in force. Iraq is forecast to contribute 60% of OPEC’s growth over the rest of this decade.

According to Bloomberg, “Oil-price volatility rebounded from the lowest on record as the violence escalated in Iraq. The 20-day historical volatility of Brent futures rose as high as 13 percent on June 12… It was at 7.2 percent on June 3, the least since the contract began trading in 1988.”

Elsewhere, Russia has reportedly cut off natural gas to Ukraine as part of a negotiation over amounts due. It may also involve the disposition of energy supplies in Crimea and the Ukraine.

 

Ultra Low Sulfur Diesel prices have broken through resistance, driven by global events and seasonal imperatives. Prices, now at $3.05, find next major resistance at $3.1850, last seen in February, 2014. Brent crude oil has taken the brunt of Iraq’s impact. It is trading about $8.00 higher than WTI. On June 11, before the current crisis began, the differential was $5.55.

 

Supply/Demand Balances

Supply/demand data for the week ending June 13, 2014 were released by the Energy Information Administration.

Total commercial stocks of oil rose 6.0 million barrels. Commercial crude oil supplies fell 0.6 million barrels during the report week. Gulf Coast storage fell 1.2 million barrels of crude oil, bringing the regional total to 205.8 million barrels. There was an increase of 200,000 barrels stored at Cushing, OK. Cushing storage holds 21.4 million barrels of inventory. This increase, while small, is the first gain since April 4th.  It suggests that the drain on Cushing may now be coming to an end as volumes reach levels typical during the years 2004-2009 before the onset of shale based U.S. production growth.

Crude oil imports were up slightly at 7.2 million barrels daily for the week.

U.S. crude oil production remained at 8.4 million barrels daily during the report week. This reflects the role played by North Dakota production. The state’s output exceeded one million barrels daily for the first time in April according to the state’s Department of Mineral Resources. The Bakken Shale is the tenth oil field ever to reach the million barrels per day level. It joins such giants as Ghawar in Saudi Arabia, Cantarell in Mexico, Samotlor in Russia, Prudhoe Bay and the Eagle Ford, both in the United States.

Refinery utilization rates moved further below 90 per cent, falling to 87.1 per cent, a decline of 0.8 percentage points from the prior week’s 87.9 per cent of capacity. The decline was especially notable on the Gulf Coast.  Facilities there operated at 84.0 per cent of capacity during the report week; they ran at 84.7 per cent during the week before. Observers expect several large facilities to return from maintenance in the next few weeks.

Gross inputs to refineries fell 155,000 barrels daily to 15.611 million barrels per day. The decline netted lower production of distillate fuel oil and propane, and higher output of gasoline and kero-jet fuel oil.

Gasoline production moved back above ten million barrels daily. Demand for the report week was 9.3 million barrels daily, a gain of 633 thousand barrels per day. Demand has been very volatile in the past six weeks but has not broken out of its recent range.

Gasoline stocks added 0.8 million barrels during the report week. Inventories on the East Coast accounted for a gain of 1.4 million barrels. A gain was also seen in the Midwest (1.1 million barrels.) Inventories on the West Coast rose 1.0 million barrels. Gulf Coast stocks fell 2.5 million barrels.

Distillate fuel oil supplies added 0.4 million barrels during the report week, rising to 119.4 million barrels. Supplies in the U.S. lag last year’s levels by 2.2 million barrels. Distillate fuel oil demand was 3.8 million barrels daily.

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Refinery production of distillate fuels was 4.7 million barrels daily during the report week.

Propane inventories added another 2.0 million barrels in the U.S. Stocks have reached the average level of the past five years. PADD III stocks had a reduction of 48,000 barrels. Propane demand rose to 934,000 barrels per day.

 

 Natural Gas

According to the EIA: Working gas in storage was 1,719 Bcf as of Friday, June 13, 2014. This represents a net increase of 113 Bcf from the previous week. Stocks were 706 Bcf less than last year at this time and 851 Bcf below the 5-year average of 2,570 Bcf.

Natural gas storage in the contiguous United States through last Friday has increased at a record pace for the past five weeks. Net working gas injections have totaled more than 100 Bcf during each of these five weeks, extending from the week ending on May 9, to the week ending on June 6. This was only the second recorded instance of more than 100 Bcf of net injections for five weeks in a row. After a relatively slow inventory build in April, storage during these five weeks has increased by a record 551 Bcf.

The accelerated increases in underground storage reflect also flat demand from the power sector. Nonetheless, supplies remain at their lowest level for this time of year since 2003.

Prices have not trended, moving down from recent highs at $4.77. Support can be found at $4.29.

 

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 03 NO. 25
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