Oil Futures Break Resistance

  1. Prices advance despite inventory surpluses
  2. Distillate demand drops below 3 million barrels daily
  3. Unemployment data surprisingly strong
  4. Working oil and gas rigs record new low

Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse
 
 
 

The Matrix

The physically-delivered futures energy contracts ended the week of June 5 venturing modestly into new high territory. The break of resistance introduces new resistance at levels not seen since early March.

Prices have moved inexorably higher notwithstanding the emergence of bearish features like the 9.9-million-barrel increase in stocks of distillate fuel oil reported in the EIA’s weekly supply/demand report for the week ending May 29, 2020. The same report estimated diesel demand of 2.7 million barrels daily.

Distillate demand at this level has not been seen since 1999.  Global prices were under pressure then because Iraq was pushing production higher. It was also when Asian finance was in crisis as regional currencies lost standing and capital flight ensued.

The current situation reflects continuing weakness in the business sector overlaid by the national response to Covid-19. An unexpectedly bullish report placed unemployment at 13.3%. This unemployment number will be the subject of many analyses by skeptics in the future. Nonetheless, it provides the basis for some optimism as business plans for economic recovery.

Unemployment Rate 1930 – 2020 Source: Bureau of Labor Statistics, CNN Where might prices go with the support of better-than-expected employment data? WTI crude oil has moved above $39.68. Next resistance can be found $41.06. This level was achieved early in March.

Petroleum products also moved above resistance. Distillate fuel oil printed $1.1506, opening a path to $1.3025. Market technicians will also point to a gap in March futures pricing that closes above $1.50. RBOB looks toward $1.3075 for its next objective.

One caution is needed. The United States is opening businesses despite concerns expressed by scientists that a new round of virus sickness should be expected. Another spike in sicknesses could bring the economy to a new halt and press prices lower. Put protection should be considered.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending May 29, 2020, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose by 15.1 million barrels during the week ending May 29, 2020.

Commercial crude oil supplies in the United States decreased by 2.1 million barrels from the previous report week to 532.3 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Rose 0.3 million barrels to 12.9 million barrels
PADD 2: Down 1.7 million barrels to 141.8 million barrels
PADD 3: Plus 1.6 million barrels to 296.8 million barrels
PADD 4: Down 0.5 from the previous report week to 24.5 million barrels
PADD 5: Down 1.9 million barrels to 56.3 million barrels

Cushing, Oklahoma inventories were down 1.8 million barrels from the previous report week to 51.7 million barrels.

Domestic crude oil production fell 0.2 million barrels per day from the previous report week to 11.2 million barrels daily.

Crude oil imports averaged 6.200 million barrels per day, a daily decrease of 1.021 million barrels. Exports fell 382,000 barrels daily to 2.794 million barrels per day.

Refineries used 71.8 percent of capacity, plus 0.5% from the previous report week.

Crude oil inputs to refineries increased 315,000 barrels daily; there were 13.307 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 89,000 barrels daily to reach 13.616 million barrels daily.

Total petroleum product inventories rose 13.0 million barrels from the previous report week.

Gasoline stocks increased 2.8 million barrels daily from the previous report week; total stocks are 257.8 million barrels.

Demand for gasoline rose 295,000 barrels per day to 7.549 million barrels per day.

Total product demand decreased 892,000 barrels daily to 15.066 million barrels per day.

Distillate fuel oil stocks increased 9.9 million barrels from the previous report week; distillate stocks are at 174.3 million barrels. EIA reported national distillate demand at 2.718 million barrels per day during the report week, a decrease of 548,000 barrels daily.

Propane stocks increased 3.1 million barrels from the previous report week; propane stocks are 67.3 million barrels. The report estimated current demand at 589,000 barrels per day, a decrease of 190,000 barrels daily from the previous report week.

 

Natural Gas

A leading measure of potential production is the U.S. oil and gas rig count. Data for the week ending June 5 showed the count falling by 17 rigs, a 6% decline, week-on-week. This was the fifth weekly decline shown for operating rigs.

There are only 284 rigs working in the United States. This is the lowest number of rigs operating since the data began being reported in 1940. Some analysts expect rig counts to keep falling this year and continuing at lower levels through 2022. There are, however, some drillers that have begun to reverse their cuts, reflecting improved prices for crude oil and modest recoveries in demand for both crude oil and natural gas, where power use has grown.

 

Weekly Rig Count 2007 – 2020 Source: Baker Logistics

 

According to EIA:

The net injections [of natural gas] into storage totaled 102 Bcf for the week ending May 29, compared with the five-year (2015–19) average net injections of 103 Bcf and last year’s net injections of 118 Bcf during the same week. Working natural gas stocks totaled 2,714 Bcf, which is 422 Bcf more than the five-year average and 762 Bcf more than last year at this time.

The average rate of injections into storage is 19% 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 9.2 Bcf/d for the remainder of the refill season, the total inventory would be 4,145 Bcf on October 31, which is 422 Bcf higher than the five-year average of 3,723 Bcf for that time of year. According to The Desk survey of natural gas analysts, estimates of the weekly net change to working natural gas stocks ranged from net injections of 97 Bcf to 130 Bcf, with a median estimate of 106 Bcf.

 

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