Weekly Energy Market Situation, March 23, 2015

Weekly Energy Market Situation, March 23, 2015

Crude Oil Stocks Continue Building

Price charts hint at a reversal
Global demand projected to move higher.
National crude oil storage near 88% of capacity
Low prices could be the norm through 2015.

Sincerely,

Alan Levine Chairman, Powerhouse

DOE Statistics for the Week Ending March 13, 2015
DOE Stocks	3/13/2015	3/6/2015	3/14/2014	Stocks v. Last Week	Stocks v. Year Ago
Crude Oil (Excluding SPR)	458.5	448.9	375.9	9.6	82.7
Gasoline	235.4	239.9	222.3	-4.5	13.1
Distillates	125.9	125.5	110.8	0.4	15.0
Propane/Propylene	54.3	53.7	26.2	0.5	28.0
Total Petroleum Products	733.1	735.6	656.9	-2.6	76.1

Total Petroleum Stocks	1,191.6	1,184.5	1,032.8	7.1	158.8

Natural Gas	1,467	1,512	960	-45	507

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 emerging consensus view that crude oil prices could crater, moving even into the twenty dollar range, got pushback from the market in the week ending March 20, 2015. The expiring April crude oil futures contract fell to $42.03 but then recovered, adding nearly four dollars to value.

Market technicians might see a “hammer” candlestick price chart pattern developing. This is a reversal pattern. It is too soon to declare the sell-off at an end, but the market is at least cautioning that no trend lasts forever.

Is a Hammer Forming?

WTI Crude Oil, January 2 –March 20, 2015

At the same time, analysts are projecting growth in global demand reflecting higher demand expectations from emerging economies. OPEC has released estimates that global consumption will grow 1.2 million barrels daily in 2015, moving up to 92.4 million barrels per day. Half of the growth is expected in China and the Middle East. The Mideast is projected to grow 3.5 per cent, reaching 8.3 million barrels daily.

This could benefit U.S. refiners that are experiencing dramatic growth in export demand. (See our discussion below)

Supply/Demand Balances

Supply/demand data in the United States for the week ending March 13, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 7.1 million net barrels during the week ending March 13, 2015.

Draws were reported for gasoline, ethanol and other oils. K-jet, residual fuel oil, distillate fuel oil, and propane had small gains.

Crude oil supplies in the United States increased to 458.5 million barrels, a build of 9.6 million barrels.

Crude oil supplies rose in every PAD District. Gulf Coast facilities saw a build of 3.3 million barrels, increasing regional supply to 225.7 million barrels. Midwest crude oil stocks grew 3.1 million barrels, West Coast crude oil inventories increased 2.4 million barrels, East Coast facilities built 300,000 barrels, and storage in the Rockies rose 700,000 barrels.

Cushing, Oklahoma inventories rose 2.9 million barrels. This puts Cushing storage at 54.4 million barrels, or 77 per cent of working capacity. National crude oil storage at refineries and tank farms are now approaching 88 per cent of capacity. This adds to our concern that containment problems could cause prices to crater.

Domestic crude oil production rose by 53,000 barrels daily to 9.419 million barrels. Crude oilimports averaged 7.496 million barrels per day, a daily increase of 703,000 barrels.

Refineries utilized 88.1 per cent of capacity, an increase of 0.3 percentage points.

Crude oil inputs to refineries rose by 136,000 barrels daily; there were 15.436 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 69,000 barrels per day to 15.681 million barrels daily.

Total petroleum product inventories saw a decrease of 2.7 million barrels. Gasoline stocks declined 4.5 million barrels.

Total product demand increased 900,000 thousand barrels daily to 19.52 million barrels.

Demand for gasoline rose 745,000 barrels per day to 9.26 million barrels daily.

Distillate fuel oil supply rose 400,000 barrels. Stocks are 125.9 million barrels. National demand was reported at 3.77 million barrels per day during the report week. This was a small weekly increase of 16,000 barrels daily.

Propane stocks rose 500,000 barrels. There are 54.3 million barrels in storage. Current demand is estimated at 1.078 million barrels per day, down 247,000 barrels from the previous report week.

Exports of petroleum products continue to grow. EIA has noted that record refinery runs and growing international product demand led to increasing U.S. product exports for the thirteenth consecutive year. Product exports are destined mostly for markets in the Americas, but last year increased in every region save the Middle East.

Motor gasoline exports of 875 thousand barrels daily set a monthly record for December, 2014. Most gasoline goes to Canada and Mexico. Distillate exports fell for the first time since 2004. This reflected lower outflows to Western Europe and Africa. U.S. refiners are now competing with higher European refinery runs, exports from Russia and new refinery capability in the Middle East.

Natural Gas

According to EIA:

Working gas in storage was 1,467 Bcf as of Friday, March 13, 2015, according to EIA estimates. This represents a net decline of 45 Bcf from the previous week. Stocks were 507 Bcf higher than last year at this time and 225 Bcf below the 5-year average of 1,692 Bcf.

The natural gas withdrawal season is drawing to a close with storage slightly below 1.5 Tcf. Injections to underground storage are about to begin. One estimate calls for storage to reach 3.84 Tcf at its conclusion. This is modestly less than the historical maximum fill of 3.93 Tcf reached in 2012. A weak demand season this summer raises the same concerns about containment now being expressed for crude oil.

Ordinarily low prices would inhibit production and storage. Fracking has changed that expectation to some degree. Bloomberg New Energy Finance provided a remarkable estimate of breakeven pricing:

In part of the Marcellus reservoir in Pennsylvania, the nation’s most productive gas basin, the break-even price is 38 cents. Some producers in the nearby Utica shale can make money by selling gas at a loss because of profits earned from gas liquids that flow from the same wells.

Costs like these can support low prices for some time. If weather does not create “normal” demand this summer, a storage surplus could develop. Bank of America’s analysts project this could move prices below $2. Even normal weather could bring prices to $2.25 by July according to their analysis.

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