Easier U.S. Crude Oil Storage Casts Doubt on Deep Slide in Price
- Crude oil stocks fell for second time this year
- NOAA says an El Nino could bring a mild winter to the Northeast
- Product demand breaks over 20 million barrels daily
- Fewer gas drill rigs are not indicative of reduced natural gas production
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
Declining crude oil inventories, in particular at Cushing OK this week, suggest that concerns over the adequacy of storage may be waning. Factors contributing to the change include (i) more intense use is taking crude oil to refineries, (ii) a more robust crude oil distribution system opens more opportunities for storage, (iii) price arbitrage allocates regional supply. In particular, capacity at tank farms appears to be opening up. As storage eases, the possibilities of a deep slide in price diminish as well.
Weather has returned as a significant factor in planning for next winter. Some meteorologists are calling for a “monster” El Nino now developing in the Pacific Ocean. If this weather feature occurs, it could bring flooding to Southern California. NOAA has boosted the odds of El Nino continuing into the summer to 90%. The weather bureau summarizes the effects of El Nino on the U.S. as follows:
The impacts of El Niño upon climate in temperate latitudes show up most clearly during wintertime. For example, most El Niño winters are mild over western Canada and parts of the northern United States, and wet over the southern United States from Texas to Florida. El Niño affects temperate climates in other seasons as well. But even during wintertime, El Niño is only one of a number of factors that influence temperate climates.
Supply/Demand Balances
Supply/demand data in the United States for the week ending May 8, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum decreased 5.5 million net barrels during the week ending May 8, 2015.
Builds were reported in stocks of K-jet, residual fuel and propane. Declines were experienced in stocks of RBOB, Ethanol, distillate fuel oil and other oils.
Crude oil supplies in the United States decreased to 484.8 million barrels, a draw of 2.2 million barrels from storage. This was the second consecutive decline in stocks of crude oil this year but did not reflect a small recovery in production.
Crude oil supplies decreased in four of the five PAD Districts. PADD 2 (Midwest) stocks declined 0.9 million barrels. PADD 3 (Gulf Coast) crude oil stocks declined 0.8 million barrels. East Coast and Rocky Mountain crude oil storage PADDs saw small declines of 300,000 and 500,000 barrels respectively. Crude oil stored in West Coast facilities (PADD 5) increased 0.3 million barrels.
Cushing, Oklahoma inventories fell to 60.7 million barrels a decrease of one million barrels.
Domestic crude oil production increased 5,000 barrels daily – a negligible gain in production. Daily production for the week ending May 1 was 9.374 million barrels. Notably, output in the Lower 48 states added 16,000 barrels daily. Crude oil imports averaged 6.881 million barrels per day, a daily increase of 340,000 barrels.
Refineries used 91.2 per cent of capacity, a decrease of 1.8 percentage points from the previous week.
Crude oil inputs to refineries dropped 379,000 barrels daily; there were 15.968 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 327,000 barrels per day to 16.302 million barrels daily.
Total petroleum product inventories saw a decline of 3.3 million barrels. Gasoline stocks rose 1.1 million barrels.
Total product demand rose 2.5 million barrels daily to 20.865 million barrels per day. More than half of the gain, however, was in other oils, generally a balancing number in the weekly demand report.
Demand for gasoline rose 416,000 barrels per day to 9.201 million barrels daily.
Distillate fuel oil supply lost 2.5 million barrels. Stocks are 128.3 million barrels. National demand was reported at 4.524 million barrels per day during the report week. This was a weekly increase of 644,000 barrels daily.
Propane added 1.9 million barrels to supply. There are 68.5 million barrels in storage. Current demand is estimated at 0.991 million barrels per day, a decline of 26,000 barrels daily from the previous report week.
Natural Gas
According to EIA: The net injection reported for the week ending May 8 was 111 Bcf, up from 76 Bcf the previous week. This level compares with the five-year average net increase of 82 Bcf for that week and last year’s net increase of 101 Bcf. Working gas inventories for the storage week totaled 1,897 Bcf, 752 Bcf (65.7%) higher than last year at this time and 38 Bcf (2.0%) lower than the five-year (2010-14) average.
The number of rigs in operation, as of May 8, totaled 894, a drop of more than 1,000 since 2014’s September 26 peak of 1,930 rigs, according to data from Baker Hughes. Of these, 668 rigs were targeting oil and 221 were targeting gas. As recently as November 2011, there were as many gas rigs active as there are total rigs today, and in August 2008, when shale gas exploration was ramping up, there were 1,606 gas rigs, representing 79% of all rigs deployed nationwide.Over the past several years, the rig count has fallen, but without reducing production. This has been accomplished largely because of gains in rig efficiency, including improved technology but also the higher quality of the rigs and crews that are still operating.
Moreover, producers are “high-grading,” choosing to focus their resources on their most prospective opportunities.
Prices have been trading bullishly. They are challenging resistance at $3.05. Next major resistance maybe found at $3.35.
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. 19
Was this memo helpful? We’d like your feedback. Please respond to [email protected] Copyright © 2014 Powerhouse, All rights reserved.
