High Crude Oil Stocks Put Focus on Exports
This week’s Energy Market Situation highlights:
- Crude oil stocks near record; raises pressures to allow exports
- All commercial petroleum stocks continue to rise
- Refinery utilization moved higher to 88.5 percent
- Falling natural gas prices are seen as corrective against anticipated delivery infrastructure problems ahead
Sincerely,
Alan Levine
Chairman, Powerhouse
The Matrix
Crude oil inventories were at 388 million barrels in the most recent EIA report. Refineries are operating at high rates, but with stocks bumping up against 400 million barrels, a level not seen since at least 1982, pressure to permit export of crude oil is intensifying.
Small wonder, then, that permission to export light crude oil condensate attracted lot of attention. Prices spiked briefly. When it became clear that the authorization did not represent a significant change in U.S. export policy, crude oil prices ebbed. (The change appears to allow, for the first time, condensates that have been run through a stabilizer to qualify for export. Products refined through a splitter are already eligible for export.)
Overseas, military incursions into Iraq continue to occupy the news. Oil production in Southern Iraq has not been affected, however, and the Iraqi government is promising higher crude oil exports in July.
Supply/Demand Balances
Supply/demand data in the United States for the week ending June 13, 2014 were released by the Energy Information Administration.
Total commercial stocks of oil rose 5.2 million barrels. Supplies are now at 1.114 billion barrels of oil, an increase of 18 million barrels in the month of June.
Commercial crude oil added 1.7 million barrels to inventory during the report week. There are 388.1 million barrels of crude oil in the system. Gulf Coast storage increased 2.0 million barrels of crude oil, bringing the regional total to 207.8 million barrels.
There was another increase at Cushing, OK. Four hundred thousand barrels were added to storage at Cushing, which holds 21.8 million barrels of inventory. This increase is the second consecutive gain in recent weeks. It supports the idea that the drain on Cushing may now be coming to an end.
Crude oil imports were up slightly at 7.3 million barrels daily for the week. U.S. crude oil production remained at 8.4 million barrels daily during the report week.
Refinery utilization rates recovered slightly moving to 88.5 per cent, an increase of 1.4 percentage points from the prior week’s 87.1 per cent of capacity. The decline was especially notable in the Midwest, where utilization rose 4.2 points. This offset an increase of 4.1 percentage points on the Gulf Coast. This reflects the return of several large facilities from maintenance.
Gross inputs to refineries increased 261,000 barrels daily to 15.9 million barrels per day. The decline netted lower production of gasoline and kero-jet, and higher output of distillate fuel oil.
Gasoline production was above ten million barrels daily. Demand for the report week was 8.8 million barrels daily, a reduction of 445 thousand barrels per day. Demand has been very volatile in the past seven weeks but has not broken out of its recent range.
Gasoline stocks added 0.7 million barrels during the report week. Inventories on the East Coast accounted for a reduction of 0.2 million barrels. A larger gain was seen on the Gulf Coast (1.3 million barrels.) Inventories on the West Coast declined 0.6 million barrels.
Distillate fuel oil supplies added 1.2 million barrels during the report week, rising to 120.6 million barrels. The dominance of ultra-low sulfur diesel stocks is now overwhelming. Nearly 85 per cent of distillate fuel oil is ULSD.
Supplies in the U.S. lag last year’s levels by 2.6 million barrels. They have barely reached the lower end of the past five year range. Distillate fuel oil demand was 3.6 million barrels daily. Refinery production of distillate fuels was 4.9 million barrels daily during the report week.
Propane inventories added another 2.4 million barrels in the U.S. Stocks have now matched the average level of the past five years. Propane demand fell to 894,000 barrels per day.
Natural Gas
Natural gas prices lost more than fifty cents over the past two weeks. This reflected unexpectedly large injections to underground storage and demand ameliorated by cooler weather in recent weeks.
One research group asserts that the large volume of recoverable natural gas now available in the United States so enhances supply flexibility that price will trade “in the $4-$5 range for the next 10 years, though prices may jump with demand from time to time… .”
Another view was offered by a different market participant, “There is still much infrastructure that still needs to be built to move the gas to market. We had additional capacity this winter but still had price spikes in certain locations due to inability to move the supply. There are pipeline constraint points that won’t go away for some time and may never be resolved. Future demand will be increasing due to exports, reverse flows on some of the pipelines (REX, Columbia), power plants switching to nat gas and increased residential and industrial use. Our customers are becoming less complacent due to the fear of having another winter like last one and are beginning to lock in their price. I think you will still see price spikes.”
According to the EIA, natural gas in storage increased by triple digits for the seventh straight week: The net injection reported for the week ending June 20 was 110 Bcf, 29 Bcf larger than the 5-year average net injection of 81 Bcf and 16 Bcf larger than last year’s net injection of 94 Bcf. Working gas inventories totaled 1,829 Bcf, 690 Bcf (27.4%) less than last year at this time, and 822 Bcf (31.0%) below the 5-year (2009-13) average.
There are currently 19 more weeks in the injection season, which traditionally occurs April 1 through October 31… EIA forecasts that the end-of-October working natural gas inventory level will be 3,424 Bcf, which, as of June 20, would require an average injection of 84 Bcf per week through the end of October.
EIA’s forecast for the end-of-October inventory levels are below the 5-year (2009-13) average value of 3,837 Bcf. To reach the 5-year average by October 31, average weekly injections through the end of October would need to be 106 Bcf.
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. 26
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