Energy markets are wrestling with new geopolitical realities and possibilities. Potential petroleum export capabilities provide credible tools for providing alternative supplies and imposing diplomatic sanctions.
The ability to impose sanctions has a down side: joint ventures between Russia and western oil interests could be at risk.
Balances between supply and demand continue to follow late winter patterns: increasing crude oil stocks and falling product stocks.
Natural gas held in underground storage fell to 896 Bcf. Such stocks are half of last year’s inventory level.
Alan Levine
Chairman, Powerhouse
The Matrix
Geopolitical uncertainty brought crude oil prices higher last week, despite increasingly bearish storage data from the EIA. The United States `announced new sanctions against Russia in response to Russia’s annexation of Crimea. Analysts are still evaluating the impact of American crude oil and natural gas as “energy weapons.”
The counter to the idea of a surging role for US energy exports in the political arena comes with the realization that imposing constraints on Russia could harm US energy interests as collateral damage. The Russian energy sector reportedly accounts for more than two-thirds of national export earnings and finances more than half the country’s federal budget. Interference in this sector could have severe effects on the Russian economy.
There’s another side to this story. Russian companies are closely associated with Western companies in various joint ventures. One American company, for example, has a stake in a large offshore project expected to produce 630 million barrels of oil. Non-Russian partners are involved in shale oil development in Siberia.
Russia now produces ten million barrels daily of crude oil. Output is projected to decline by one million barrels per day by 2020 from existing sources. New oil provinces will be needed to support Russia’s position. Sanctions may well be harmful to Russia but could also negatively affect Western interests as well.
Prices at Week’s End
Petroleum liquids prices moved higher after the indecision of the week before. (Recall Powerhouse discussed the doji candlestick pattern – an indicator of indecision — in last week’s Energy Market Situation.) In particular, WTI crude oil rallied to $101.67. Resistance is found at $105.22.
RBOB prices experienced an “inside” week. The weekly high was $2.9526, lower than the high of the previous week: the low was $2.89674, higher than the prior week’s low. Like the doji, inside weeks are indecisive.
Distillate fuel oil prices moved clearly higher, after bottoming at $2.884. Next resistance is around $3.0025.
Supply/Demand Balances
Supply/demand data for the week ending March 21, 2014 were released by the Energy Information Administration. The data continue the pattern common for late winter: increasing crude oil stocks and falling product stocks. Crack spreads did not respond as bullishly as the data might suggest. The May gasoline crack spread lost $0.32 in the first four days of this week.
Total commercial stocks of oil rose 5.5 million barrels. Crude oil supplies rose 6.6 million barrels during the report week. Since January 10th, US refiners have added 32.2 million barrels to crude oil stocks. Imports rose 308,000 barrels daily.
The crude oil supply situation was again particularly soft on the Gulf Coast where six million barrels of crude oil were added to supply. There are now more than 200 million barrels of crude oil in Gulf Coast storage, 52.4 per cent of the national total and a record level of storage. This represents near maximum capacity in that region. Nonetheless, crude oil prices remain bullish.
Cushing, OK lost another 1.3 million barrels of stock, now at 28.5 million barrels. As the Gulf Coast fills up, we might expect Cushing supplies to increase again.
Gasoline stocks fell to 217.2 million barrels, a weekly drop of 5.1 million barrels. Weekly demand rebounded nearly one-half million barrels daily. It probably also reflects the result of preparation of tankage for low RVP material.
Distillate fuel oil added 1.6 million barrels to storage during the week. Much of that was on the East Coast where 2.1 million barrels found their way into storage.
Propane inventories fell nearly 600 thousand barrels during the week, now at 25.7 million barrels. Supplies are hugging the lower end of the range of the past five years.
Natural Gas
According to the EIA, cooler weather brought a larger-than-average net withdrawal.
The net withdrawal reported for the week ending March 21 was 57 Bcf, 50 Bcf larger than the 5-year average of 7 Bcf, but 33 Bcf smaller than last year’s net withdrawal of 90 Bcf. Working gas inventories totaled 896 Bcf, 899 Bcf (50.1%) less than last year at this time, 926 Bcf (50.8%) below the 5-year (2009-13) average, and 721 Bcf (44.6%) below the 5-year minimum.
Natural gas dry production in the United States increased for the third week in a row, by 0.4%, to 66.9 Bcf/d. However, the 0.2 Bcf/d increase in U.S. dry production this week only partially offset a 0.3 Bcf/d (6.2%) decrease in net natural gas pipeline imports from Canada.
Average natural gas consumption increased for the second week in a row, by 1.9%, to 81.4 Bcf/d. Increases occurred in all sectors except industrial.
Natural gas prices had an inside week as was the case for RBOB. Resistance is at $4.615 and support is at $4.372. Volatility is low, consistent the shoulder season now in force.
Futures trading involves significant risk and is not suitable for everyone. Transactions in securities futures, commodity and index futures and options on future markets carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract, meaning that transactions are heavily “leveraged”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the clearing firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. Past performance may not be indicative of future results. This is not an offer to invest in any investment program.Vol. PH 03 NO. 13
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