Crude Oil Prices Strengthen

  1. Calls to renew OPEC cuts are growing
  2. U.S. shale oil output exceeds expectations
  3. OPEC recognizes importance of shale oil in assessing global supply balances 
  4. EIA projects rising natural gas production in 2017


Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse

The Matrix

The OPEC-non-OPEC production cuts have reportedly been almost fully subscribed. Nonetheless, crude oil prices have not responded bullishly. West Texas Intermediate (WTI) reached $53.76 early in April, but could not sustain that price. Since then, WTI fell, giving back $10 by May 5.

Calls for renewal of the OPEC cuts have proliferated. And if the OPEC-non-OPEC producers really complied fully with the current deal, it seems likely that there is more that could be cut. But even adherence to a more stringent production regime may not be enough to support prices.

The challenge facing the OPEC group is, of course, expansion of shale oil production in North America. The rig count continues to rise, and estimates of future output are moving higher. We noted last week, “U.S crude oil production was forecast to average 9.2 million b/d in 2017 and 9.9 million b/d in 2018” according to the Energy Information Administration (EIA). This alternative source of supply could offset any cut in foreign crude oil output. The model of global oil supply that has OPEC as the balance wheel for price and availability is broken. It should be reconsidered in light of the rise of U.S. oil output.

The most recent data on U.S. supply balances for the week ending May 5, 2017, were bullish for price. They showed a reduction in crude oil stocks of nearly 6 million barrels despite a further increase in domestic production. EIA put production at 9.3 million barrels daily, continuing steady growth since July 2016. Production is now equivalent to its level two years ago.



There was a reduction in crude oil imports during the report week that explained more than half the decline. At the same time, however, crude oil inputs to refineries were nearly 3 million barrels lower than during the week before.

Weekly changes in domestic oil balances vary widely. The last EIA report was seen as bullish, but even OPEC recognizes the growing significance of shale oil production. The most recent OPEC estimate for non-OPEC supply growth raised U.S. gains by 282,000 barrels daily to 820,000 barrels per day.


Supply/Demand Balances

Supply/demand data in the United States for the week ending May 5, 2017, were released by the EIA.

Total commercial stocks of petroleum decreased 3.6 million barrels during the week ending May 5, 2017.

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

Commercial crude oil supplies in the United States decreased to 522.5 million barrels, a draw of 5.2 million barrels.



Crude oil supplies decreased in three of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks fell 1.5 million barrels, PADD 3 (Gulf Coast) stocks declined 6.4 million barrels and PADD 4 (Rockies) stocks retreated 0.3 million barrels. PADD 2 (Midwest) stocks increased 1.9 million barrels and PADD 5 (West Coast) stocks expanded 1.1 million barrels.

Cushing, Oklahoma inventories decreased 0.4 million barrels from the previous report week to 66.3 million barrels.

Domestic crude oil production increased 21,000 barrels daily to 9.314 million barrels per day.

Crude oil imports averaged 7.620 million barrels per day, a daily decrease of 644,000 barrels. Exports grew 155,000 barrels daily to 693,000 barrels per day.

Refineries used 91.5% of capacity, a decrease of 1.8 percentage points from the previous report week.

Crude oil inputs to refineries decreased 418,000 barrels daily. There were 16.759 million barrels per day of crude oil run to facilities.

Gross inputs, which include blending stocks, fell 334,000 barrels daily to 17.034 million barrels daily.

Total petroleum product inventories saw an increase of 2.2 million barrels from the previous report week.

Gasoline stocks decreased 0.2 million barrels; total stocks are 241.1 million barrels.

Demand for gasoline rose 252,000 barrels per day to 9.408 million barrels daily.

Total product demand increased 651,000 barrels daily to 20.545 million barrels per day.

Distillate fuel oil supply fell 1.6 million barrels to 148.8 million barrels. National distillate demand was reported at 4.139 million barrels per day during the report week. This was a weekly decrease of 118,000 barrels daily.

Propane stocks rose 2.0 million barrels; total stocks are 41.6 million barrels. Current demand is estimated at 707,000 barrels per day, a decrease of 383,000 barrels daily from the previous report week.


Natural Gas

According to the EIA:

Elevated consumption of natural gas likely resulted in smaller-than-average net injections into working gas storage. Net injections into storage totaled 45 Bcf, compared with the five-year (2012 – 2016) average net injection of 73 Bcf and last year’s net injections of 58 Bcf during the same week. 

Working gas levels are 14% lower than last year’s record levels, but well ahead of the five-year average. Working gas levels are 372 Bcf lower than last year’s levels at this time.

EIA anticipates natural gas production rising in 2017, reversing a drop last year. The administration expects gas consumption to decline this year. Last year, consumption reached a record high. The decline in 2016 production reflected reduced drilling because of lower energy prices.


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