Oil Futures Take Unemployment Data in Stride

  1. Unemployment rises to 14.7%
  2. Market pressures are strong for bulls and bears
  3. U.S. rig count falls to historic low
  4. Natural gas in storage 52% more than last year

Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse
 
 

The Matrix

The first Friday of May brought bad news to an already faltering U.S. economy. The Labor Department estimated unemployment comprised 14.7% of the workforce. This translates into 20.5 million people out of work. The implications of such a large reduction in employment and loss of spending power could be significant for the petroleum industry, where demand has already markedly contracted.

This estimate of unemployment may understate the true measure of damage inflicted by Coronavirus-19. The Labor Department has pointed out that “the unadjusted unemployment rate in April would have been almost 5 percentage points higher had workers been classified as unemployed on temporary layoff, rather than employed but absent from work due to other reasons. Furloughed workers accounted for about 4 out of every 5 unemployed Americans.”

The energy futures markets reacted with notable calm to data that could be expected to cause prices to swoon. June futures prices, however, have displayed little range in May following a period of high March and April volatility.

The potential for soft-demand petroleum prices is itself in conflict with other price drivers. Supplies of crude oil are likely to be reduced by promised cuts in output. OPEC, Russia and a cohort of other global producers are expected to remove nearly 10 million barrels of crude oil from the market starting in May. (Saudi Arabia has increased previously announced production cuts by one million barrels daily. In June, the Kingdom will produce 4.8 million barrels per day less than in it did in April.)

In the United States, shale producers have stopped drilling new wells. The Baker-Hughes rig count for the week ending May 8 fell to 374 rigs. This is the least number of active wells in the 80 years that this number has been reported.

The push-pull on oil prices from these factors suggests two-way range trading over the next few weeks. Technical analysis provides trading guidance through measures of support and resistance.

ULSD has support around 79 cents and resistance at 92 cents. A break of either of these levels offers a glimpse into ULSD’s next trend.

RBOB support is around 76.90 cents. Market resistance is at 96.50 cents.

WTI futures are trading between support at $18 and resistance at $28

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending May 1, 2020, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose by 17.9 million barrels during the week ending May 1, 2020.

Commercial crude oil supplies in the United States increased by 4.6 million barrels from the previous report week to 532.2 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Plus 1.0 million barrels to 12.1 million barrels
PADD 2: Plus 1.1 million barrels to 156.7 million barrels
PADD 3: Plus 2.3 million barrels to 282.7 million barrels
PADD 4: Plus 0.3 from the previous report week to 24.7 million barrels
PADD 5: Down 0.1 million barrels to 56.1 million barrels

Cushing, Okla., inventories were up 2.0 million barrels from the previous report week to 65.4 million barrels.

Domestic crude oil production was fell 0.2 million barrels per day from the previous report week to 11.9 million barrels daily.

Crude oil imports averaged 5.712 million barrels per day, a daily increase of 410,000 barrels. Exports rose 244,000 barrels daily to 3.546 million barrels per day.

Refineries used 70.5% of capacity, up 2.0% from the previous report week.

Crude oil inputs to refineries increased 215,000 barrels daily; there were 12.976 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 175,000 barrels daily to reach 13.382 million barrels daily.

Total petroleum product inventories rose 13.3 million barrels from the previous report week.

Gasoline stocks decreased 3.2 million barrels daily from the previous report week; total stocks are 256.4 million barrels.

Demand for gasoline rose 804,000 barrels per day to 6.664 million barrels per day.

Total product demand decreased 409,000 barrels daily to 15.354 million barrels per day.

Distillate fuel oil stocks increased 9.5 million barrels from the previous report week; distillate stocks are at 151.5 million barrels. EIA reported national distillate demand at 3.129 million barrels per day during the report week, an decrease of 35,000 barrels daily.

Propane stocks increased 2.5 million barrels from the previous report week; propane stocks are 59.4 million barrels. The report estimated current demand at 826,000 barrels per day, a decrease of 489,000 barrels daily from the previous report week.

 

Natural Gas

Natural gas futures made an attempt to move higher, briefly moving above $2.00, a level last seen on February 20. But the weight of injected storage was too much to overcome. Prices have again retreated into range trading. Support lies around $1.53.

According to EIA:

The net injections into storage totaled 109 Bcf for the week ending May 1, compared with the five-year (2015–19) average net injections of 74 Bcf and last year’s net injections of 96 Bcf during the same week. Working natural gas stocks totaled 2,319 Bcf, which is 395 Bcf more than the five-year average and 796 Bcf more than last year at this time.

 

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.

Powerhouse is a registered affiliate of Coquest, Inc.

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