Oil Price Recovery Continues
- Oil markets take on a bullish tone
- U.S. crude oil production continues to fall
- Gasoline demand increases
- Dry natural gas production declines
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
Crude oil has retraced a quarter of the total decline in prices that began in summer, 2014 and has only now started to translate into a more bullish tone. It is supplanting bearish sentiment that has pervaded the oil markets for nearly two years. A two-million-barrel build in crude oil was reported in the most recent EIA weekly supply balance report. Nonetheless, crude oil production continued to fall. Output fell 70 thousand barrels daily in April, moving under nine million barrels daily. The decline is part of a larger drop from 9.6 million barrels per day in June, 2015.
Constrained U.S. production has not, apparently, been materially offset by increased supplies overseas. As noted in last week’s Energy Market Situation, foreign production challenges abound. Many observers, for example, are very skeptical of the Saudi claim that it can easily expand production by two million barrels daily. And new supplies from Iran have been slower to expand than anticipated.
U.S demand estimates for the week ending April 22, 2016 exceeded 19.8 million barrels per day—and this was a decline of 400 thousand barrels daily from the previous week.Gasoline is always an important factor when considering petroleum balance. And because gasoline demand in the United States amounts to ten per cent of global oil consumption it is particularly valuable as an indicator of the global oil outlook.
Analysts are projecting U.S. gasoline demand to grow about two per cent in 2016. The gain is bullish, but bearish price concerns have developed, reflecting high refinery use brought about by low crude oil prices.
This is apparent in Asia. Traditionally importers, Japan and China are now becoming exporters, putting downward pressure on crack spreads in the region.
On balance, shortened crude oil supply and strong demand are a recipe for price strength. The WTI crude oil price has exceeded resistance at $42.45 and remains comfortably above that level. Objectives of $51 and $59.75 lie ahead. These represent important areas of resistance. Press reports are proliferating that prices over fifty dollars will encourage the renewal of domestic crude oil exploration and development and put a cap on further price advances.
Supply/Demand Balances
Supply/demand data in the United States for the week ending April 22, 2016 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 5.2 million net barrels during the week ending April 22, 2016.
Builds were reported in stocks of gasoline, K-jet fuel, propane, and other oils. Draws were reported in stocks of fuel ethanol and distillates. Stocks of residual fuel oil were unchanged from the previous report week.
Crude oil supplies in the United States increased to 540.6 million barrels, a build of 2.0 million barrels.
Crude oil supplies increased in four of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks increased 0.5 million barrels, PADD 2 (Midwest) crude stocks grew 1.6 million barrels, PADD 3 (Gulf Coast) stocks expanded 1.1 million barrels, and PADD 4 (Rockies) stocks increased 0.3 million barrels. PAD District 5 (West Coast) crude oil stocks experienced a draw of 1.4 million barrels.
Cushing, Oklahoma inventories increased 1.7 million barrels to 66.0 million barrels.
Domestic crude oil production decreased 15,000 barrels daily to 8.938 million barrels per day.
Crude oil imports averaged 7.550 million barrels per day, a daily decrease of 637,000 barrels.
Refineries used 88.1 per cent of capacity, a decrease of 1.3 percentage point from the previous report week.
Crude oil inputs to refineries decreased 257,000 barrels daily; there were 15.847 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 118,000 barrels to 16.140 million barrels daily.
Total petroleum product inventories saw an increase of 3.2 million barrels from the previous report week.
Gasoline stocks increased 1.6 million barrels; total stocks are 241.3 million barrels. Demand for gasoline decreased 129,000 barrels per day to 9.315 million barrels daily.
Total product demand decreased 400,000 barrels daily to 19.828 million barrels per day.
Distillate fuel oil supply decreased 1.7 million barrels; total stocks are 158.2 million barrels. National distillate demand was reported at 4.122 million barrels per day during the report week. This was a weekly decrease of 154,000 barrels daily.
Propane stocks increased 2.3 million barrels to 71.2 million barrels. Current demand is estimated at 850,000 barrels per day, a decrease of 92,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
Working gas stocks climb for second straight week. Working gas in the Lower 48 states posted its first back-to-back reported net injection of the young refill season, which began on April 1. Net injections into storage totaled 73 Bcf during the storage report week, compared with the five-year (2011-15) average of 52 Bcf and last year’s net injection of 84 Bcf during the same week.
As a result, the surplus in storage compared with the five-year average rose from the previous week to 832 Bcf, and the surplus compared with year-ago levels decreased to 870 Bcf. Cumulative net injections of working gas during the 2016 refill season total 77 Bcf, compared with the five-year average of 119 Bcf.
Distressed pricing has taken its toll on natural gas production. EIA reports that production of dry gas in the lower 48 states has fallen from a February high. Data through April 23 shows natural gas output 2.5 per cent lower than in February.
The drop in production reflects not only soft prices as reported on the futures markets but also regionally. “The Marcellus and Utica shale plays, where much of the production growth has occurred, showed even lower prices.” Other factors include delays on other pipeline projects, limiting gas movements in the Northeast, record low rig counts, reduced capex and warmer weather.
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