Prices Run Into Resistance
- First reduction of crude oil stocks this year
- ULSD prices start to fill a gap
- Total oil stocks continue to grow
- Natural gas rally is corrective
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
Oil prices moved insistently higher from early April, despite evidence of bloated inventories and indifferent demand. Distillate fuel oil prices added nearly forty cents in the month and WTI crude oil briefly topped $62.50 before setting back.
The first reduction in crude oil stocks since the week ending January 2, 2015 was characterized as heralding the end of the supply glut despite the reality that total petroleum stocks rose 6.6 million barrels during the week ending May 1st. This raises the question whether the April rally is likely to continue.
One aspect of this question might be seen in Ultra Low Sulphur Diesel (HO) prices. They fell dramatically at the beginning of March. This reflected weather changes that saw the end of unusual cold in February. Prices fell nineteen cents as the April HO contract became spot. A “gap”—a region on the price chart in which no futures transactions had occurred—developed as a result.
It is a maxim of chart watchers that gaps will be filled. And price action this week could be seen as supporting that idea. The gap had its low at $1.97. Before release of the EIA supply/demand data, ULSD prices reached $2.0572, moving well into the gap. Notwithstanding the reduction in crude oil supplies and only a modest increase in ULSD supplies, prices backed away from the highs.
The price decline in HO has not been vigorous, suggesting indecision among traders. This is why the possibility of renewed efforts to fill the gap should not be discounted. The gap high is $2.1655. This year, spring planting was slowed by weather as was refilling storage. If these activities continue into May, the potential for a price recovery cannot be dismissed. Price support can be found at $56.60 for crude oil, $1.9125 for ULSD and $1.9375 for RBOB.
Supply/Demand Balances
Supply/demand data in the United States for the week ending May 1, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 6.6 million net barrels during the week ending May 1, 2015.
Builds were reported in stocks of gasoline, distillate fuel, residual fuel, propane, and other oils. K-jet fuel saw a small decline in stocks. Fuel ethanol stocks were unchanged.
Crude oil supplies in the United States decreased to 487.0 million barrels, a draw of 3.9 million barrels from storage.
Crude oil supplies decreased in all five PAD Districts. PADD 2 (Midwest) stocks declined 1.6 million barrels. PADD 3 (Gulf Coast) crude oil stocks fell 1.0 million barrels. Crude oil stored in west coast facilities (PADD 5) fell 0.9 million barrels. East Coast and Rocky Mountain crude oil storage PADDs saw small declines.
Cushing, Oklahoma inventories were unchanged; Cushing storage remains at 61.7 million barrels.
Domestic crude oil production decreased 4,000 barrels daily – this decline in production is negligible. Daily production for the week ending May 1 was 9.369 million barrels. Crude oil imports averaged 6.541 million barrels per day, a daily decrease of 905,000 barrels.
Refineries used 93.0 per cent of capacity, an increase of 1.7 percentage points from the previous week.
Crude oil inputs to refineries rose by 247,000 barrels daily; there were 16.347 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 289,000 barrels per day to 16.629 million barrels daily.
Total petroleum product inventories saw an increase of 2.7 million barrels. Gasoline stocks rose 0.4 million barrels.
Total product demand decreased 1.38 million barrels daily to 18.196 million barrels.
Demand for gasoline declined 135,000 barrels per day to 8.785 million barrels daily.
Distillate fuel oil supply rose 1.5 million barrels. Stocks are 130.8 million barrels. National demand was reported at 3.879 million barrels per day during the report week. This was a weekly decrease of 114,000 barrels daily.
Propane stocks rose 1.8 million barrels. There are 66.5 million barrels in storage. Current demand is estimated at 1.018 million barrels per day, up 157,000 barrels daily from the previous report week.
Natural Gas
According to EIA: The net injection reported for the week ending May 1 was 76 Bcf, down from 81 Bcf the previous week. This compares with the five-year average net increase of 68 Bcf for that week and last year’s net increase of 75 Bcf. Working gas inventories for the storage week totaled 1,786 Bcf, 742 Bcf (71.1%) higher than last year at this time and 67 Bcf (3.6%) lower than the five–year (2010–14) average.
EIA forecasts that the end-of-October working natural gas inventory level will be 3,781 Bcf, which, as of May 1, would require an average injection of 77 Bcf per week through the end of October.
Natural gas prices fell to $2.443 on April 27, 2015. This was a 62 per cent decline from the $6,493 recorded on February 24, 2014. A technical correction may now be developing that could retrace to $3.00—or even $3.40. Elliott Wave counts prices as completing the current decline. However, subsequent new lows can not be excluded. This means that a retest of the April 27th low is possible. Further lows are found at $2.16 and $1.902.
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 04 NO. 18
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