Gasoline Appears to Have Reached Its Peak

  1. Nearly five years after the Great Recession ended, the U.S. has finally regained all the jobs lost in the downturn.
  2. Gasoline appears to have reached its price peak.
  3. Ultra Low Sulfur Diesel (ULSD) is testing price support.
  4. Total petroleum stocks rose 8.8 million barrels during the week ending May 30, 2014.
  5. Refinery production of distillate fuels reached 5.2 million barrels daily during the report week. This was one of the highest levels ever recorded.

 

Al pic 2009_cropped

Sincerely,
Alan Levine
Chairman, Powerhouse
 

power1

 

 

 

 

 

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

The United States added 217,000 new jobs in May, down 65,000 from April’s pace. The unemployment rate remained at 6.3 per cent. This month’s report from the Labor Department was significant. “Nearly five years after the Great Recession ended, the U.S. has finally regained all the jobs lost in the downturn,” according to the Associated Press.

Ultra Low Sulfur Diesel moved down towards long-term support last week. Prices fell to $2.8455 and bounced. The pattern of testing HO prices in the $2.75 – $2.80’s has been in place since early 2011. With strong demand and tight inventories, there is little reason to expect this pattern to change. As noted here, volatilities have been falling and option premiums are becoming more attractive.

Gasoline seems to have run out of steam in recent days. Divergence in the spread, buy July HO and sell RBOB is developing. At writing, July gasoline is trading 7.68 cents over July ULSD. A minimal recovery by HO could bring these prices back to par.

 

Supply/Demand Balances

Supply/demand data for the week ending May 30, 2014 were released by the Energy Information Administration.

Total commercial stocks of oil rose 8.8 million barrels. Commercial crude oil supplies fell 3.4 million barrels during the report week. Gulf Coast storage fell 6.0 million barrels of crude oil, bringing the total to 207.1 million barrels. The decline reflected another decline at Cushing, OK where 300,000 barrels more were lost.

Crude oil imports retreated, moving down 700,000 barrels daily to 7.1 million barrels daily for the week. Gulf Coast receipts fell one million barrels daily and each PADD east of the Rockies lost imports. West Coast refiners, on the other hand, imported 1.2 million barrels daily, a gain of nearly 500,000 barrels per day.

U.S. crude oil production retreated marginally, moving to 8.4 million barrels daily during the report week.  Refinery utilization rates rose 0.9 percentage points from the prior week’s 89.9 per cent of capacity. East of the Rockies, refineries ran at rates greater than 90 per cent. Refiners ran at 85.1 per cent of capacity in the West, itself a gain of 1.1 percentage points.

Refiners had gross inputs to facilities 16,270 million barrels per day, a weekly increase of 157,000 barrels daily. Inputs have been rising steadily despite softening of product futures crack spreads. Distillate fuel oil crack spreads are trading round $17.36. They reached $35.30 during January’s cold. Gasoline cracks, trading around $20.75, are approaching support at $20.00.

Nonetheless, U.S. crudes are cheaper than foreign oils. WTI is valued $5.90 below Brent. This gives U.S. refiners an edge in international markets. As noted here many times, we can export products and this provides the incentive for intense refining now under way.

Gasoline production continues to exceed ten million barrels daily. Demand for the report week is at 9.1 million barrels daily. Using a four week average, demand is running 5.4 per cent higher than last year at this time.

Gasoline stocks added 0.2 million barrels during the report week. Inventories on the East Coast accounted for a gain of 1.4 million barrels. The decline was seen in the Midwest (-1.5 million barrels) and on the Gulf Coast (-0.5 million barrels per day.) Inventories on the West Coast rose 0.7 million barrels.

Distillate fuel oil supplies added 2 million barrels during the report week, rising to 118.1 million barrels. Supplies in the U.S. lag last year’s levels by 5.2 million barrels. Supplies of distillate fuel oil have remained below the lower level of the past five years. Distillate fuel oil demand was 4.2 million barrels daily.

It is significant that refinery production of distillate fuels reached 5.2 million barrels daily during the report week. This was one of the highest levels ever recorded. The benefit of cheaper U.S. distillate fuel oil is reflected in daily exports of nearly one million barrels.

Propane inventories added 3.7 million barrels in the U.S. PADD II stocks had a gain of 1.3 million barrels. Gulf Coast supplies grew 1.9 million barrels. Propane demand was put at 0.7 million barrels per day.

The recovery in propane stocks has been very rapid. After bottoming at 25.6 million barrels late in March, more than 20 million barrels have been added to supply.

 

Natural Gas

According to the EIA: Working gas in storage was 1,499 Bcf as of Friday, May 30, 2014. This represents a net increase of 119 Bcf from the previous week. Stocks were 737 Bcf less than last year at this time and 896 Bcf below the 5-year average of 2,395 Bcf

EIA says that there are 22 more weeks in the injection season, ending October 31st natural gas in underground storage to reach 3.4Tcf. This would require weekly injections of 87 Bcf. The average inventory level at the beginning of the withdrawal season over the past five years has been 3.8Tcf. Weekly injections of 106 Bcf would be needed to reach that level.

 

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. 23


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