Crude Oil Reacts to Conflict in Yemen
- Potential loss of access to the Suez Canal roils markets
- Crude oil stocks in US expand again
- Domestic production of crude oil remains over 9.4 million barrels daily
- Natural gas injection occurs during withdrawal season
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
One of the benefits of energy independence in the United States should be reduced reliance on foreign sources of crude oil supply. This is especially valuable when those sources are politically unstable and can pose a threat to regular supply. And that is exactly what the United States has been experiencing. Conflicts in Libya and Iraq have done little to move crude oil price. This week, events in Yemen moved the needle.
Crude oil prices reached a low on March 18 at $42.03. Price reached $46.53 as that week ended, creating the “hammer” candlestick reversal pattern discussed in the Energy Market Situation, March 23, 2015. This indicator gained support from price action during the week ending March 27th. From a low at $45.33, WTI crude oil reached $52.48 before retreating as the week drew to a close.
The rally was a reaction to airstrikes by a coalition of Sunni Arab nations against Shia factions now in effective control of Yemen. The concern for oil prices was that Yemen sits on the Bab-el-Mandeb, a strait between the Horn of Africa and the Straits of Hormuz. It stands at the southern end of the Suez Canal and the SUMED pipeline. It links the Indian Ocean and the Mediterranean Sea. If it were to be blocked, nearly four million barrels daily of crude and products would need to be diverted around Africa. This would add about 12 days to transit time, effectively impinging on supply.
The situation with Iran has bearish price implications. Current expectations make a deal more likely by month end. Even if this is so, relief for Iran would not likely come until June. The implications are for higher Iranian production starting in the second half of 2015.
Supply/Demand Balances
Supply/demand data in the United States for the week ending March 20, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 10.6 million net barrels during the week ending March 20, 2015.
Draws were reported for gasoline and K-Jet. Stocks of ethanol, residual fuel oil, propane, and other oils saw gains. Distillate fuel oil stocks were unchanged.
Crude oil supplies in the United States increased to 466.7 million barrels, a build of 8.2 million barrels.
Crude oil supplies rose in every PAD District except for PADD 1 (East Coast) which saw a draw of 0.7 million barrels. Midwest crude oil stocks grew 4.7 million barrels increasing regional supply to 142.7 million barrels. Gulf Coast facilities saw a build of 1.5 million barrels, West Coast crude oil inventories increased 1.6 million barrels, and storage in the Rockies rose 0.9 million barrels.
Cushing, Oklahoma inventories rose 1.9 million barrels. This puts Cushing storage at 56.3 million barrels.
Domestic crude oil production was unchanged; daily production for the week ending March 20 was 9.422 million barrels. Crude oil imports averaged 7.392 million barrels per day, a daily decrease of 104,000 barrels.
Refineries utilized 89.0 per cent of capacity, an increase of 0.9 percentage points.
Crude oil inputs to refineries rose by 94,000 barrels daily; there were 15.530 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 156,000 barrels per day to 15.837 million barrels daily.
Total petroleum product inventories saw an increase of 2.4 million barrels. Gasoline stocks declined 2.0 million barrels.
Total product demand decreased 818,000 thousand barrels daily to 18.7 million barrels.
Demand for gasoline fell 641,000 barrels per day to 8.619 million barrels daily.
Distillate fuel oil supply rose saw no change. Stocks are 125.8 million barrels. National demand was reported at 3.97 million barrels per day during the report week. This was a weekly increase of 192,000 barrels daily.
Propane stocks rose 700,000 barrels. There are 55.0 million barrels in storage. Current demand is estimated at 1.077 million barrels per day, down 1,000 barrels daily from the previous report week.
Natural Gas
According to EIA: The first net injection started before the heating season ends in March. This is the first time since March 2012 that inventory builds started before the end of the heating season, traditionally defined as November 1 through March 31. Despite this, natural gas stocks remain below their five-year average.
With a net injection of 12 Bcf for the week, working gas inventories as of March 20 totaled 1,479 Bcf, 575 Bcf (63.6%) higher than last year at this time and 194 Bcf (11.6%) lower than the five-year (2010-14) average. This year’s net injection of 12 Bcf for the report week compares with the five-year average net withdrawal of 19 Bcf and last year’s net withdrawal for the same week of 56 Bcf.
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