The Rally Breaks

  1. ULSD prices fall by one-fifth
  2. Delayed buyers seek opportunity
  3. Open Interest liquidating
  4. Minimal price retracement achieved


Al pic 2009_cropped

Alan Levine—Chairman, Powerhouse
(202) 333-5380


The Matrix

Powerhouse has been chronicling the advance of oil prices since November 2020. WTI spot crude oil futures bottomed at $33.64 and RBOB hit $0.9702.

The rally that saw oil futures double was based on bullish drivers like improved petroleum demand and better production control by OPEC+. Moreover, markets have benefitted from development of a highly effective vaccine for COVID-19. Prices had been supported in its most recent rally phase by cold weather in Texas and the tightening product supply in the Southwest.

Crude oil futures moved to a high of $66.40. RBOB futures topped at $2.17. Distillate prices reached $1.98.

The week ended March 19 saw the first significant setback in the price advance since it began. By week’s end, WTI futures lost $4.19 in value, settling at $61.42. RBOB fell $0.2159 to settle at $1.9341, and ULSD lost $0.1452, closing the week at $1.8223.

Buyers who had failed to buy the rally near its November inception now saw their opportunity to get long. Several indicators can help make the decision. One of them is Open Interest, a measure of the number of active futures contracts.

On March 16, there were 460,000 distillate fuel oil contracts open in the market. By March 18, the number had fallen to 436,000. A smaller number of contracts suggests that traders had been liquidating positions. (If Open Interest had been rising with prices falling, a bearish position would be indicated.)

Another way to test the advance in the decline in prices might be found in retracement. There are well-recognized counter-trend levels that may be used.

The chart of daily heating oil spot prices shows several retracements. Based on last week’s data, the dramatic decline in prices constituted a 23.6% loss in value. The next important retracements, a move of 38.2% brings us to $1.6195, and a 50% drop is $1.5060. But retracements of such depth raise concerns if a new high is possible. For now, the minimal retracement could represent an entry point for buyers.

The bullish factors are still with us. We now have three effective vaccines and a national easing of pandemic constraints. The OPEC+ controls appear to be effective, at least for now. Expectations of crude oil prices at “$80 in the summer,” or “north of $100,” have taken a hit. There remain several bullish elements to be experienced, including the possible return of inflation.


Supply/Demand Balances

Supply/demand data in the United States for the week ended March 5, 2021, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose by 1.3 million barrels during the week ended March 5, 2021.

Commercial crude oil supplies in the United States increased by 2.4 million barrels from the previous report week to 500.8 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Down 0.2 million barrels to 8.2 million barrels

PADD 2: Down 1.6 million barrels to 132.2 million barrels

PADD 3: Plus 5.3 million barrels to 288.2 million barrels

PADD 4: Plus 0.5 million barrels to 23.0 million barrels

PADD 5: Down 1.5 million barrels to 49.3 million barrels


Cushing, Oklahoma, inventories were down 0.6 million barrels from the previous report week to 48.2 million barrels.

Domestic crude oil production was unchanged from the previous report week at 10.9 million barrels daily.

Crude oil imports averaged 5.323 million barrels per day, a daily decrease of 332,000 barrels. Exports decreased 113,000 barrels daily to 2.520 million barrels per day.

Refineries used 76.1% of capacity, up 7.1% from the previous report week.

Crude oil inputs to refineries increased 823,000 barrels daily; there were 13.433 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 1,203,000 barrels daily to 13.989 million barrels daily.

Total petroleum product inventories fell 1.2 million barrels from the previous report week.

Gasoline stocks rose 0.5 million barrels from the previous report week; total stocks are 232.1 million barrels.

Demand for gasoline fell 284,000 barrels per day to 8.442 million barrels per day.

Total product demand increased 261,000 barrels daily to 18.261 million barrels per day.


Natural Gas

Natural gas spot futures continue to scribe a flat price around $2.48. It will not be enough for the market to hold support at current levels to initiate a rally. Prices will also have to break resistance. Further support may be found at $2.25 and $2.16.

Distillate fuel oil stocks rose 0.3 million barrels from the previous report week; distillate stocks are at 137.7 million barrels. EIA reported national distillate demand at 4.028 million barrels per day during the report week, a decrease of 459,000 barrels daily.

Propane stocks fell 0.2 million barrels from the previous report week; propane stocks fell to 41.0 million barrels. The report estimated current demand at 1.138 million barrels per day, a decrease of 348,000 barrels daily from the previous report week.

According to the EIA:

The net withdrawals from [natural gas] storage totaled 11 Bcf for the week ending March 12, compared with the five-year (2016–2021) average net withdrawals of 59 Bcf and last year’s net withdrawals of 15 Bcf during the same week. Working natural gas stocks totaled 1,782 Bcf, which is 93 Bcf lower than the five-year average and 253 Bcf lower than last year at this time.

The average rate of withdrawals from storage is 16% higher than the five-year average so far in the withdrawal season (November through March). If the rate of withdrawals from storage matched the five-year average of 3.6 Bcf/d for the remainder of the withdrawal season, the total inventory would be 1,713 Bcf on March 31, which is 93 Bcf lower than the five-year average of 1,806 Bcf for that time of year.


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