Bullish Price Action Returns

  1. WTI crude oil recovered half its recent decline
  2. ULSD gained 15 cents during the week
  3. Bullish factors and seasonality remain in place
  4. Natural gas bullish sentiment is around 10%

Al pic 2009_cropped

Sincerely, Alan Levine Chairman of Powerhouse
(202) 333-5380
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The Matrix

A rally in oil prices erased nearly half of a sixteen dollar sell-off experienced by WTI crude oil futures.  A bearish market suddenly turned bullish.

Spot crude oil futures topped out on April 23, 2019 at $66.60. Subsequently, prices moved lower until June 21.  The decline reflected a growing expectation of expanding global inventories of both crude oil and products. Falling prices were also ascribed to concerns that global business activity was likely to slow under pressure from trade conflicts between the United States and China.

As recently as June 10th, Powerhouse noted the bearish state of oil markets. World Bank economic growth estimates were lowered to 2.5 percent, slowest since 2016.  The impact of tariffs was also seen as bearish for growth.

Crude oil prices recovered dramatically during the week ending June 21.  A U.S. drone was shot down by Iran. Retaliatory strikes by the United States were anticipated, but then called off.

Friday, June 21, was a quiet day on oil futures markets.  WTI crude oil price had a small range, ending the day with doji-like indecision between bulls and bears.

The rally, attributable to a specific geopolitical affair, was large enough to question our call for a continued bear market. Petroleum products both confirmed the up-move.  ULSD rallied 15 cents during the week, ending at $1.9309, slightly off the high.  RBOB had an even greater twenty cent rally to $1.8674.  A fire at Philadelphia’s PES Refinery raised concern over RBOB availability on the East coast. Gasoline’s price action was far more robust than WTI.

Diplomatic tensions have already spilled over into action, notwithstanding the stand-down initiated by the President.  The bullish concerns expressed over ULSD prices because of the imposition of maritime fuel oil low sulfur requirements starting next year remain in place. The calendar also conduces to a bullish stance. Many dealers have not yet established winter positions and typically do so during the summer price trough into October.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending June 14, 2019, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell 0.4 million barrels during the week ending June 14, 2019.

There were draws in stocks of gasoline, fuel ethanol, distillates, and residual fuel. There were builds in stocks of K-jet fuel, propane, and other oils.

Commercial crude oil supplies in the United States fell 3.1 million barrels from the previous report week to 482.4 million barrels.

Crude oil supplies increased in three of the five PAD Districts. PADD 1 (East Coast) crude oil stocks rose 0.9 million barrels, PADD 2 (Midwest) stocks advanced 0.8 million barrels, and PADD 5 (West Coast) stocks increased 1.2 million barrels. PAD District 3 (Gulf Coast) crude oil stocks decreased 5.8 million barrels and PADD 4 (Rockies) stocks declined 0.2 million barrels.

Cushing, Oklahoma inventories were up 0.7 million barrels from the previous report week to 53.6 million barrels.

Domestic crude oil production fell 100,000 barrels per day from the previous report week to 12.2 million barrels daily.

Crude oil imports averaged 7.467 million barrels per day, a daily decrease of 144,000 barrels. Exports increased 300,000 barrels daily to 3.422 million barrels per day.

Refineries used 93.9 percent of capacity, an increase of 0.7 percentage points from the previous report week.

Crude oil inputs to refineries increased 200,000 barrels daily; there were 17.264 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 134,000 barrels daily to 17.669 million barrels daily.

Total petroleum product inventories rose 2.7 million barrels from the previous report week.

Gasoline stocks decreased 1.7 million barrels daily from the previous report week; total stocks are 233.2 million barrels.

Demand for gasoline rose 51,000 barrels per day to 9.928 million barrels per day.

Total product demand decreased 316,000 barrels daily to 20.807 million barrels per day.

Distillate fuel oil stocks decreased 0.6 million barrels from the previous report week; distillate stocks are at 127.8 million barrels. EIA reported national distillate demand at 4.061 million barrels per day during the report week, a weekly decrease of 307,000 barrels daily.

Propane stocks increased 3.3 million barrels from the previous report week; propane stocks are 74.5 million barrels. The Report estimated current demand at 602,000 barrels per day, a decrease of 304,000 barrels daily from the previous report week.

 

Natural Gas

According to the Energy Information Administration:

Net injections into storage totaled 115 Bcf for the week ending June 14, compared with the five-year (2014–18) average net injections of 84 Bcf and last year’s net injections of 95 Bcf during the same week. Working gas stocks totaled 2,203 Bcf, which is 199 Bcf lower than the five-year average and 209 Bcf more than last year at this time.

The average rate of net injections into storage is 39% higher than the five-year average so far in the refill season (April through October). If the rate of injections into storage matched the five-year average of 9.3 Bcf/d for the remainder of the refill season, total inventories would be 3,493 Bcf on October 31, which is 199 Bcf lower than the five-year average of 3,692 Bcf for that time of year.

Natural gas futures collapsed with release of the underground storage numbers. Spot futures ended the week at $2.186. New support is at $1.61. Some technical traders expressed the possibility of a test of old lows around one dollar.

At the same time, market sentiment was put at 12 percent bulls according to a long-established sentiment-tracking service. This very bearish number could indicate a bottoming and start of a recovery.

 

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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