A Bullish Tone Emerges

  1. Cuts in Gasoline and ULSD inventories
  2. Low gasoline prices could mean record summer demand
  3. Refinery utilization fell
  4. Natural gas remains range-bound

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse
 
 
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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

The possibility of a large global surplus of petroleum was blunted slightly with release of supply/demand data for the United States for the week ending May 6, 2016 by the EIA. Analysts expected crude oil stocks in the United States to increase 500 thousand barrels for the week. This would have been the fifth consecutive increase in crude oil stocks. In April, supplies rose 13.5 million barrels, reaching 543.4 million barrels in the previous week.

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Crude oil stocks fell — upending expectations. A report from the International Energy Agency confirmed the bullish tone. The Agency projected a decline in production from non-OPEC producers of 800,000 barrels daily in 2016.

Refinery use fell too — a bullish surprise for product traders. Moreover, supplies of gasoline fell,despite analysts’ expectations. Our last weekly report suggested large volumes of cheap crude” could create a substantial surplus in gasoline this summer.

One week’s bullish data does not in itself reverse a trend, there remains a substantial overhang of supply, but the possibility of summer product strength must not be ignored. WTI rose to 2016 highs after the EIA data were released.

Moreover, unplanned disruptions like the fires that inhibited output in Canada could eat into the global surplus. And low gasoline prices are encouraging consumption, notably in China and India. “Any changes to our current 2016 global demand outlook are now more likely to be upwards than downwards, as gasoline demand grows strongly in nearly every key market, more than offsetting weakness in middle distillates.”

Gasoline demand in the United States reached a new high for 2016. EIA estimated demand for the report week at 9.658 million barrels daily. The highest weekly demand recorded by EIA going back to February, 1991 was 9.762 barrels per day. Year-on-year use for the week has risen 4.4 per cent.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending May 6, 2016 were released by the Energy Information Administration.

Total commercial stocks of petroleum decreased 1.4 million net barrels during the week ending May 6th, 2016.

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

Crude oil supplies in the United States decreased to 540.0 million barrels, a draw of 3.4 million barrels.

Crude oil supplies decreased in all five of the PAD Districts. PAD District 1 (East Coast) crude oil stocks fell 0.4 million barrels, PADD 2 (Midwest) crude stocks decreased .6 million barrels, PADD 3 (Gulf Coast) stocks declined 1.5 million barrels, PADD 4 (Rockies) stocks decreased 0.7 million barrels, and PADD 5 (West Coast) stocks experienced a draw of 0.4 million barrels.

Cushing, Oklahoma inventories increased 1.5 million barrels to 67.8 million barrels.

Domestic crude oil production decreased 23,000 barrels daily to 8.802 million barrels per day.

Crude oil imports averaged 7.655 million barrels per day, a daily decrease of 5,000 barrels.

Refineries used 89.1 per cent of capacity, a decrease of 0.6 percentage point from the previous report week.

Crude oil inputs to refineries increased 193,000 barrels daily; there were 16.179 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 103,000 barrels to 16.320 million barrels daily.

Total petroleum product inventories saw an increase of 2.0 million barrels from the previous report week.

Gasoline stocks decreased 1.2 million barrels; total stocks are 240.6 million barrels. Demand for gasoline increased 157,000 barrels per day to 9.658 million barrels daily.

Total product demand decreased 289,000 barrels daily to 19.952 million barrels per day.

Distillate fuel oil supply decreased 1.6 million barrels; total stocks are 155.3 million barrels.  National distillate demand was reported at 4.014 million barrels per day during the report week. This was a weekly increase of 68,000 barrels daily.

Propane stocks increased 1.3 million barrels to 73.2 million barrels. Current demand is estimated at 918,000 barrels per day, a decrease of 182,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA:

Working gas in the Lower 48 states posted its fourth straight week of net injections. Net injections into storage totaled 56 Bcf during the storage report week, compared with the five-year (2011-15) average of 79 Bcf and last year’s net injection of 101 Bcf during the same week. As a result, the surplus in storage compared with the five-year average declined from the previous week to 813 Bcf, and the surplus compared with year-ago levels decreased to 816 Bcf.

 

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Natural gas futures have moved steadily higher since bottoming at $1.612 on March 7, 2016. The recent high at $2.195 was reached on April 29. May has seen the uptrend and resistance hold. Release of the injection data for the week ending May 6 challenged, but did not exceed that high. A break of resistance opens the way to $2.40, last seen early in January. Interim resistance can be found at $2.315.

 

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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