Petroleum Product Prices Fall

  1. Trade war talk picked up steam
  2. Weakness in global trade activity now emerging
  3. HO futures next support at $1.77
  4. Gasoline crack spreads under pressure
  5. Natural gas prices reach support at $2.45

Al pic 2009_cropped

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

The Matrix

Weakness in manufacturing and trade activity has been developing since mid-2018. It is now apparent in softer global demand for distillate fuel oil prices. Economists estimate that world trade volumes have been falling at their fastest rate since 2009. Anxiety over the chaotic state of economic relations between the United States and China has also contributed to falling distillate fuel oil prices.

Imposing requirements for low-sulfur fuels on ocean-going vessels effective at the start of 2020 will offset lower demand for middle distillates to some degree. Analysts have estimated that IMO 2020 could add as much as 1.5 million barrels per day to requirements for compliant maritime fuels, a positive for price in the future. Now, however, concern for the actual and potential loss of demand has the bit in its teeth and is pushing futures prices for HO lower.

Prices for HO futures started 2019 at their low for the year price of $1.64. Futures advanced in stair-step fashion, topping at $2.14 early in May. Spot futures closed the month at $1.84. HO lost more than half of the year’s gains in one month. Next support for HO can be found at $1.77 – a Fibonacci retracement of 61.8 percent. A full retracement to the $1.64 level last seen in January cannot be excluded.

Gasoline prices are also moving lower. This, however, is consistent with seasonal action. This year, RBOB topped out in late April at $2.16 and has since moved steadily downward. It reached $1.80 as May ended.

The impact on gasoline crack spreads is now being seen. The July gasoline crack spread rallied through May, topping at $22.91. It has since fallen, breaking an uptrend line on May 31.

If signs of a weakening global economy continue and traditional price patterns prevail, the July gas crack could see support at $20.82 and then $18.28.

July 2019 Gas Crack Dialy Prices January – May 2019 source: CME

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending May 24, 2019, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell 1.6 million barrels during the week ending May 14, 2019.

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

Commercial crude oil supplies in the United States fell 0.3 million barrels from the previous report week to 476.5 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 0.2 million barrels, and PADD 4 (Rockies) stocks rose 0.5 million barrels. PADD 3 (Gulf Coast) stocks fell 0.8 million barrels and PADD 5 (West Coast) stocks declined 1.1 million barrels.

Cushing, Oklahoma inventories were unchanged from the previous report week at 49.1 million barrels.

Domestic crude oil production rose 100,000 barrels per day from the previous report week to 12.3 million barrels daily.

Crude oil imports averaged 6.862 million barrels per day, a daily decline of 81,000 barrels. Exports increased 395,000 barrels daily to 3.317 million barrels per day.

Refineries used 91.2 percent of capacity, an increase of 1.3 percentage points from the previous report week.

Crude oil inputs to refineries increased 189,000 barrels daily; there were 16.767 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 233,000 barrels daily to 17.108 million barrels daily.

Total petroleum product inventories fell 1.3 million barrels from the previous report week.

Gasoline stocks increased 2.2 million barrels daily from the previous report week; total stocks are 230.9 million barrels.

Demand for gasoline fell 36,000 barrels per day to 9.394 million barrels per day.

Total product demand increased 1.798 million barrels daily to 21.458 million barrels per day.

Distillate fuel oil stocks fell 1.6 million barrels from the previous report week; distillate stocks are at 124.8 million barrels. National distillate demand was reported at 4.282 million barrels per day during the report week. This was a weekly increase of 495,000 barrels daily.

Propane stocks decreased 0.1 million barrels from the previous report week; propane stocks are 65.8 million barrels. Current demand is estimated at 921,000 barrels per day, an increase of 426,000 barrels daily from the previous report week.

 

Natural Gas

According to the Energy Information Administration:

Net injections into storage totaled 114 Bcf for the week ending May 24, compared with the five-year (2014–18) average net injections of 97 Bcf and last year’s net injections of 95 Bcf during the same week. Working gas stocks totaled 1,867 Bcf, which is 257 Bcf lower than the five-year average and 156 Bcf more than last year at this time.

EIA reports wet natural gas prices rose across the country during the report week ending May 29. Nonetheless, spot futures fell sharply as May ended. Prices reached new support at $2.45, breaking support at $2.54. This level has held since June, 2016. Weather damage in the Midwest has surely curtailed regional demand, perhaps contributing to continuing weakness in natural gas futures pricing.

 

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Powerhouse is a registered affiliate of Coquest, Inc.

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