WTI Breaks Support
- Crude oil below $50 for first time since December 8, 2016
- Bearish features include high stocks, more production and lower refining demand
- New support at $45.20, ULSD at $1.4630 and RBOB at $1.5530
- End-of-season natural gas storage to exceed 2.1 Tcf
Sincerely,
Alan Levine, Chairman of Powerhouse
The Matrix
It is a maxim of oil trading that fundamentals always win—eventually. The narrow range that captured West Texas Intermediate (WTI) crude oil prices between $50 and $54.50 since last December appeared to defy that rule.
Several indicators combined to show growing bearishness in the U.S. oil situation. Crude oil stocks expanded dramatically, domestic production grew and refinery demand for crude oil fell.
The gain in commercial crude oil stocks began in December with supplies at 479.0 million barrels in storage. Since then, inventories rose for nine consecutive weeks. Most recently, they reached 528.4 million barrels. This is a record level, presaging weakness in product prices as crude oil is refined.
The increase in the latest crude oil data reflected imports of 8.2 million barrels daily for the week ending March 3, 2017. Domestic crude oil production continued to recover, now solidly over 9 million barrels daily. These new supplies come about at a time when refineries used only 15.5 million barrels daily.
Import volumes were particularly notable in view of the OPEC-non-OPEC production agreement, which was designed to reduce the overhang of crude oil supplies in global markets. And while OPEC continues to flog the success of the deal, the reality is that Saudi Arabia is bearing the lion’s share of cuts. The Saudi Oil Minister recently warned that the Kingdom “will only accept limited intervention by OPEC in oil markets.”
This caveat comes at a time when the Energy Information Administration (EIA) has increased its estimate of U.S. crude oil output growth in 2017. EIA now expects crude oil output to rise to 9.21 million barrels daily from 8.88 million barrels per day in 2016. This 330,000-barrels-per-day gain more than triples the agency’s last estimate, made only a month ago.
The increase in the latest crude oil data reflected imports of 8.2 million barrels daily for the week ending March 3, 2017. Domestic crude oil production continued to recover, now solidly over 9 million barrels daily. These new supplies come about at a time when refineries used only 15.5 million barrels daily.
Import volumes were particularly notable in view of the OPEC-non-OPEC production agreement which was designed to reduce the overhang of crude oil supplies in global markets. And while OPEC continues to flog the success of the deal, the reality is that Saudi Arabia is bearing the lion’s share of cuts. The Saudi oil minister recently warned that the Kingdom “will only accept limited intervention by OPEC in oil markets.”
This caveat comes at a time when the Energy Information Administration has increased its estimate of U.S. crude oil output growth in 2017. EIA now expects crude oil output to rise to 9.21 million barrels daily from 8.88 million barrels per day in 2016. This 330-thousand-barrel-daily gain more than triples the agency’s last estimate, made only a month ago.
Supply/Demand Balances
Supply/demand data in the United States for the week ending March 3, 2017 were released by the EIA.
Total commercial stocks of petroleum decreased 2.4 million barrels during the week ending March 3, 2017.
Draws were reported in stocks of gasoline, distillates, fuel ethanol, K-jet fuel, distillates and propane. There were builds in stocks of residual fuel and other oils.
Commercial crude oil supplies in the United States grew to 528.4 million barrels, an increase of 8.2 million barrels.
Crude oil supplies increased in all five PAD Districts. PAD District 1 (East Coast) crude oil stocks grew 0.6 million barrels, PADD 2 (Midwest) stocks expanded 1.8 million barrels, PADD 3 (Gulf Coast) added 1.0 million barrels to stocks, PADD 4 (Rockies) crude oil stocks increased 0.1 million barrels and PADD 5 (West Coast) stocks grew 4.6 million barrels.
Cushing, Oklahoma, inventories increased 0.9 million barrels from the previous report week to 64.4 million barrels.
Domestic crude oil production increased 56,000 barrels daily to 9.088 million barrels per day.
Crude oil imports averaged 8.150 million barrels per day, a daily increase of 561,000 barrels. Exports expanded 176,000 barrels daily to 897,000 barrels per day.
Refineries used 85.9% of capacity, a decrease of 0.1 percentage points from the previous report week.
Crude oil inputs to refineries decreased 172,000 barrels daily. There were 15.492 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 27,000 barrels daily to 15.859 million barrels daily.
Total petroleum product inventories saw a decrease of 10.4 million barrels from the previous report week.
Gasoline stocks decreased 6.6 million barrels; total stocks are 249.3 million barrels.
Demand for gasoline rose 582,000 barrels per day to 9.268 million barrels daily.
Total product demand increased 404,000 barrels daily to 19.900 million barrels per day.
Distillate fuel oil supply fell 2.7 million barrels to 161.5 million barrels. National distillate demand was reported at 4.091 million barrels per day during the report week. This was a weekly increase of 278,000 barrels daily.
Propane stocks fell 4.1 million barrels to 45.2 million barrels. Current demand is estimated at 1.472 million barrels per day, an increase of 191,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
“Unseasonably mild temperatures continued…resulting in below-normal withdrawals from working gas storage. Net withdrawals from storage totaled 68 Bcf, compared with the five-year (2012 – 2016) average net withdrawal of 136 Bcf and last year’s net withdrawals of 63 Bcf during the same week.
“Warmer temperatures throughout the week for most of the Lower 48 states contributed to decreased heating demand for natural gas compared with normal levels and lower withdrawals from storage. Working gas stocks totaled 2,295 Bcf, which is 363 Bcf more than the five-year average and 192 Bcf less than last year at this time.
“Working gas stocks on pace to end the 2016 – 2017 heating season above 2,100 Bcf. If working gas stock changes follow the five-year average for the remainder of the heating season, they will total 2,151 Bcf on March 31. So far in 2017, net withdrawals are 30% below the five-average. Following this slower-than-normal pace, working gas stocks may total 2,193 Bcf by the end of the heating season, which would mark the third time since 2011 that working gas stocks ended the heating season above 2,000 Bcf.”
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