Have Energy Markets Reached A New Normal?
- Market fundamentals have settled into a pattern in recent weeks.
- March ULSD is ending its life on a strong note—more than 30 cents higher than April ULSD which is the next spot futures.
- Crude oil stocks reach another all-time high.
- Natural gas supplies are 42 per cent higher than last year at this time.
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
Market fundamentals repeated the pattern of recent weeks. Crude oil stocks continued to grow, reaching new all-time high, and storage faced serious challenges. Crude oil imports are making a smaller contribution to supply. Low price encourages demand and current levels of consumption are at relatively high levels.
The rally in oil prices that brought distillate fuel oil from $1.60 at the end of January to $2.24 in February—an increase of 64 cents—appears to have broken. April prices are trading at a discount of 26 cents. As April becomes spot, it is possible that prices could rally to close that gap. Nonetheless, a rally to new highs seems unlikely.
Supply/Demand Balances
Supply/demand data in the United States for the week ending February 20, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 2.5 million net barrels during the week ending February 20, 2015.
Draws were reported for distillate fuel oil, gasoline, and propane. K-jet, ethanol, residual fuel oil, and other oils had small gains.
Crude oil supplies in the United States increased to 434.1 million barrels, a build of 8.4 million barrels.
Stocks of crude oil rose in every PAD District except a small decline in the Rockies. Gulf Coast crude oil supplies rose 4.3 million barrels, increasing regional supply to 214.5 million barrels. Midwest crude oil stocks grew 1.9 million barrels and East Coast crude oil inventories increased 1.7 million barrels.
Cushing, Oklahoma inventories rose 2.4 million barrels. This puts Cushing storage at 48.7 million barrels according to the week’s report. With maximum storage estimated to be 70 million barrels, Cushing is on its way to capacity.
The U.S. reaching storage capacity could eventuate unless there is a shift in U.S. policy to allow for crude oil exports.
Domestic crude oil production rose by 5,000 barrels daily to 9.285 million barrels daily. Crude oil imports averaged 7.3 million barrels per day, a daily increase of 174,000 barrels.
Refineries utilized 87.4 per cent of capacity, a decline of 1.3 percentage points.
Crude oil inputs to refineries fell by 199,000 barrels daily; there were 15.24 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 228,000 barrels per day to 15.55 million barrels daily.
Total petroleum product inventories saw a decrease of 5.9 million barrels. Gasoline stocks declined 3.1 million barrels. PAD District I drew down 0.8 million barrels, PADD II decreased 0.7 million barrels, and the Gulf Coast declined 0.3 million barrels.
Total product demand decreased a little over 0.6 million barrels daily to 19.8 million barrels daily.
Demand for gasoline rose 100,000 barrels per day to 8.9 million barrels daily.
Distillate fuel oil lost 2.7 million barrels from supply. Stocks are 124.7 million barrels. National demand was reported at 4.28 million barrels per day during the report week. This was a weekly increase of 32,000 barrels daily.
Propane stocks fell 2.2 million barrels. There are 59.2 million barrels in storage. Current demand is estimated at 1.4 million barrels per day.
Natural Gas
According to EIA: Working gas in storage was 1,938 Bcf as of Friday, February 20, 2015, according to EIA estimates. This represents a net decline of 219 Bcf from the previous week. Stocks were 576 Bcf higher than last year at this time and 30 Bcf below the 5-year average of 1,968 Bcf.
The balance between production and demand has swung in favor of new supply with the drop of 219 Bcf in storage, less than anticipated for the report week. Supplies are now 42.3 per cent higher than last year at this time and only 1.5 per cent below the average of the past five years.
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