Crude Oil Inventories Fail to Top 400 Million Barrels
Highlights from this week’s report:
- A Jones Act work around has been developed. This could change the way petroleum products are shipped between US ports.
- The situation in Ukraine appears to be easing.
- Oil stocks continue to grow (but watch distillate fuel oils.
- Natural gas prices appear to be softening.
Chairman, Powerhouse
The Matrix
The situation in Ukraine has ostensibly taken a turn for the better. The possibility of sanctions on Russian oil has diminished. Russia’s President Putin has urged Eastern Ukraine separatists to delay a secession vote and seek further dialogue with the central government in Kiev. Crude oil prices eased on the news.
At the same time, however, Russia is now demanding prepayment from Ukraine for June natural gas imports. Kiev is aiming at reducing its dependence on its neighbor. Ukraine is in talks with Slovakia and other neighboring countries to reverse the gas flow so that it can buy Russian gas destined for Europe from the end buyers.
The Jones Act protects U.S. maritime shipping by restricting water shipment of petroleum between American ports to U.S. flagged vessels. This limitation contributes to regional imbalances in products such as gasoline. A recent ruling by U.S. Customs allows the use of lower-cost foreign ships to carry fuels between the Gulf and East Coasts if a stop in the Bahamas for blending is made. This could be a game changer for regional product balances.
Overflowing gasoline inventories on the Gulf Coast are reflected in spot prices discounted about 7.25 cents under NYMEX. Tight gasoline inventories in New York Harbor are reflected in spot prices trading at a premium around 1.25 cents over NYMEX. If Gulf Coast gasoline were to be blended into a “new and different product” Customs has ruled that less costly foreign flag ships could be used for transport. This could also reduce the amount of gasoline imported from Europe and Canada. This could ease tight supply situations along the East Coast.
Supply/Demand Balances
Supply/demand data for the week ending May 5, 2014 were released by the Energy Information Administration.
Total commercial stocks of oil rose 7.2 million barrels. Commercial crude oil supplies fell 1.8 million barrels during the report week. (Stocks in the Strategic Petroleum Reserve fell 700,000 barrels.) In the previous report, crude oil stocks came within 600,000 barrels of 400 million barrels. Stocks receded from that level, reflecting a further drop in imports.
Crude oil imports fell to 6.9 million barrels daily. The power of energy self-sufficiency can be seen in the fact that as recently as two years ago at this time, imports of crude oil were running nine million barrels per day.
PADD III crude oil stocks fell for the first time in a month. Regional stocks fell nearly two million barrels. Crude oil stocks in the area are now 213.4 million barrels according to EIA. The drop in stocks came about despite the continuing transfer of crude oil from Cushing, OK.
Cushing OK stocks continued their decline. There are now 24.0 million barrels of crude oil in inventory, 1.4 million barrels fewer than in the prior week.
Utilization rates fell 0.8 percentage points. Refineries ran at 90.2 per cent of capacity. East Coast facilities operated at 85.9 per cent of capacity, giving back much of the gains seen during the prior week.
Crude oil runs to stills fell slightly. Small declines on the East Coast and the West Coast were offset by a gain of 70,000 barrels daily on the Gulf Coast. Gasoline production exceeded ten million barrels daily for the second consecutive week, an unusually high level of gasoline production.
Gasoline stocks added 1.6 million barrels to supply during the report week. Inventories on the West Coast accounted for 0.9 million barrels of the gain. Demand for gasoline rose slightly too, at 8.7 million barrels daily during the report week.
The average demand over the past four weeks was 8.6 million barrels per day, 1.4 per cent higher than last year at this time.
Distillate fuel oil supplies fell 400,000 barrels during the report week to 114 million barrels. Supplies in the U.S. lag last year’s levels by 3.6 million barrels. East Coast storage fell to 32.3 million barrels. Supplies of distillate fuel oil have remained below the lower level of the past five years. This could provide important price support as the year advances. Distillate fuel oil demand was 4.3 million barrels daily.
Propane inventories added 2 million barrels in the U.S. PADD II stocks themselves accounted for half of the gain. Propane demand was down slightly at 943,000 barrels per day.
Natural Gas
According to the EIA: The net injection reported for the week ending May 2 was 74 Bcf, 2 Bcf larger than the 5-year average net injection of 72 Bcf, but 7 Bcf smaller than last year’s net injection of 81 Bcf. Working gas inventories totaled 1,055 Bcf, 797 Bcf (43.0%) less than last year at this time, 982 Bcf (48.2%) below the 5-year (2009-13) average, and 732 Bcf (41.0%) below the 5-year observed minimum.
From the week ending on April 4 to the week ending on May 2, net storage injections have totaled 233 Bcf. There are currently 26 more weeks in the injection season, which traditionally occurs April 1 through October 31. In order to reach EIA’s forecasted end of October working natural gas inventory level of 3,405 Bcf, an average injection of 90 Bcf per week will need to occur through the end of October. EIA’s forecast for the end of October inventory levels are below the 5-year (2009-13) minimum value of 3,792 Bcf. To reach the 5-year minimum, average weekly injections through the end of October would need to be 105 Bcf.
The price chart for natural gas has traced a narrow range since March. Prices bottomed at $4.22 early in April and reached a top at $4.85 as April ended. Values have softened in May, trading now around $4.51. Bollinger bands are starting to expand, a precursor, perhaps to further weakness.
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. 19
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