WTI Crude Oil Tops Out at $42

  1. Crude oil storage in U.S. reaches a new high
  2. Gasoline demand set to reach new record in 2016
  3. Propane supplies continue to shrink
  4. Natural gas beats coal as primary source of electric power

 

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Sincerely,
Alan Levine Chairman, Powerhouse
 

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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

WTI crude oil prices retreated last week after briefly touching $42. As noted last week, prices now appear to be correcting modestly. A build of nearly ten million barrels in inventory established a new supply record. The week ending March 25 saw WTI dipping to $39.46 after release of the data, but there may be more to the setback in price.

Open interest, the number of futures contracts outstanding, had been falling in the days before prices hit $42. This is a signal that the advance in price reflected short covering – holders of short positions buying back added to buying, moving prices higher.

The move to $25 earlier this year initiated large reductions in capital spending for exploration/production and has led to an agreement between OPEC and Russia to freeze production. These bullish developments could contribute to a further advance in price, but the reality of soft global economic activity cannot be ignored.

Moreover, high stock levels cannot be ignored. And new supplies now making their way to market from Iran are weighing on price. In the United States, production stubbornly resists moving below nine million barrels daily despite many factors that indicate it should. North Dakota field production, for one, fell nearly seven per cent in December 2015 from its monthly peak reached in December 2014.

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Crude oil prices are being supported in part by strong U.S. gasoline demand. Early indications are for record setting demand this year. There have been demand gains in both China and India too.  Low prices led to consumption of 9.2 million barrels daily of gasoline in 2015, nearly eclipsing the 2007 record of 9.29 million barrels per day.

EIA continues to revise its 2016 demand estimates. In December 2015, EIA projected gasoline consumption for 2016 to rise about ten thousand barrels daily. The increase in demand has been so intense that EIA raised its estimate of growth to 90 thousand barrels daily.

Refineries are recovering their run rates. This could provide adequate gasoline coverage into the summer, but could also contribute to another sell-off in distillate prices as more co-product fuel oil is refined with gasoline.

Supply/Demand Balances

Supply/demand data in the United States for the week ending March 18, 2016 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 6.9 million net barrels during the week ending March 18, 2016.

Builds were reported in stocks of distillates, residual fuel oil, and other oils. Draws were reported in stocks of gasoline, fuel ethanol, K-jet fuel, and propane.

Crude oil supplies in the United States increased to 532.5 million barrels, a build of 9.4 million barrels. This is a new record for U.S. commercial crude oil storage, government data show.

Crude oil supplies increased in three of the five PAD Districts. PADD 1 (East Coast) crude oil stocks increased 1.8 million barrels, PADD 3 (Gulf Coast) stock rose 9.0 million barrels, and PADD 4 (Rockies) expanded 0.1 million barrels. PAD District 2 (Midwest) crude oil stocks decreased 0.1 million barrels, and PADD 5 (West Coast) stocks fell 1.3 million barrels.

Cushing, Oklahoma inventories decreased 1.3 million barrels to 66.2 million barrels.

Domestic crude oil production decreased 30,000 barrels daily to 9.038 million barrels per day.

Crude oil imports averaged 8.384 million barrels per day, a daily increase of 691,000 barrels.

Refineries used 88.4 per cent of capacity, a decrease of 0.6 percentage points from the previous report week.

Crude oil inputs to refineries decreased 176,000 barrels daily; there were 15.820 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 100,000 barrels to 16,069 million barrels daily.

Total petroleum product inventories saw a decrease of 2.5 million barrels from the previous report week.

Gasoline stocks decreased 4.6 million barrels; total stocks are 245.1 million barrels. Demand for gasoline increased 44,000 barrels per day to 9.503 million barrels daily.

Total product demand increased 143,000 barrels daily to 19.403 million barrels per day.

Distillate fuel oil supply increased 0.9 million barrels; total stocks are 162.3 million barrels.  National distillate demand was reported at 3.373 million barrels per day during the report week. This was a weekly decrease of 497,000 barrels daily.

Propane stocks decreased 0.3 million barrels to 62.2 million barrels. Current demand is estimated at 1.189 million barrels per day, an increase of 34,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA:

Working gas in storage was 2,493 Bcf as of Friday, March 18, 2016, according to EIA estimates. This represents a net increase of 15 Bcf from the previous week. Stocks were 1,017 Bcf higher than last year at this time and 846 Bcf above the five-year average of 1,647 Bcf. At 2,493 Bcf, total working gas is above the five-year historical range.

The EIA has forecast 2016 as the year in which natural gas overtakes coal as the largest source of electric power.  The Administration expects natural gas will provide 33.4 per cent of power; coal will add 32 per cent.

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