Gasoline and ULSD Futures Price Trends May Be Diverging
- Propane supply growth is half of refined products inventory growth
- Gasoline prices near the top of their Spring rally
- Interesting technical developments in ULSD futures prices
- The rally in natural gas futures may have limits
Sincerely
David Thompson, CMT
Powerhouse
(202) 333-5380
The Matrix
Petroleum futures prices advanced last week. But uncertainties abound.
Domestic supply statistics showed commercial crude oil losing 2.5 million barrels during the week ended May 10. Petroleum products, on the other hand, added 6.0 million barrels to storage.
Propane, residual fuel, and other oils accounted for nearly all of the increase in refined product supply. Inventory levels barely changed for gasoline, diesel, and jet fuel.
Refinery use moved over 90% of capacity for the first time since January 12, 2024. There have been few refinery interruptions reported despite the spate of severe weather in recent days. This could have a bearish effect on prices if increasing refinery throughput relieves supply tightness.
EIA data show supply is currently under some pressure. Stocks of distillate fuel oil are 7.1% lower than the average of the past five years at this time. Similarly, gasoline stocks lag the five-year average by 1.2%, and crude oil by 3.9%.
Gasoline futures appear to have truncated their typical Spring advance in mid-April. Over the last four weeks, gasoline demand has lagged year ago levels by about 4%. With Memorial Day fast approaching, demand levels have yet to top the 9 million barrels per day mark.
ULSD futures offer an intriguing technical picture. In early April, front-month futures topped out at close to $2.80/gal. Over the next six weeks, price shed nearly 40 cents per gallon while open interest increased dramatically. Rising open interest in a falling market indicates that new money is coming into the market (the rising open interest part) and that the sellers are acting with greater urgency (the falling prices part).
However, since Wednesday, May 15th, the ULSD futures market has stabilized and even rallied slightly. This, in and of itself, isn’t surprising after a significant market price decline. Early sellers might be cashing out winning positions. If that were the case, open interest would be declining. That is currently not happening. Open interest remains at a multi-year high.
POWERHOUSE will monitor these technical factors closely. If front-month ULSD futures break below $2.40, another wave of renewed bearish intensity is likely to drive prices to the mid $2.20’s.
Supply/Demand Balances
Supply/demand data in the United States for the week ended May 10, 2024, were released by the Energy Information Administration.
Total commercial stocks of petroleum increased (⬆) 3.5 million barrels to 1.243 billion barrels during the week ended May 10, 2024.
Commercial crude oil supplies in the United States were lower (⬇) by 2.5 million barrels from the previous report week to 457 million barrels.
Crude oil inventory changes by PAD District:
PADD 1: Down (⬇) 0.8 million barrels to 8 million barrels
PADD 2: Up (⬆) 0.3 million barrels to 122.7 million barrels
PADD 3: Down (⬇) 1.2 million barrels to 257.9 million barrels
PADD 4: Down (⬇) 0.3 million barrels to 24.7 million barrels
PADD 5: Down (⬇) 0.5 million barrels to 43.8 million barrels
Cushing, Oklahoma, inventories were 341,000 barrels lower (⬇) at 35 million barrels.
Domestic crude oil production was unchanged (=) at 13.1 million barrels daily.
Crude oil imports averaged 6.744 million barrels per day, a daily decrease (⬇) of 225,000 barrels. Exports decreased (⬇) 333,000 barrels daily to 4.135 million barrels per day.
Refineries used 90.4% of capacity; 1.9 percentage points higher (⬆) than the previous report week.
Crude oil inputs to refineries increased (⬆) 307,000 barrels daily; there were 16.255 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased (⬆) 338,000 barrels daily to 16.653 million barrels daily.
Total petroleum product inventories increased (⬆) by 6 million barrels from the previous report week, up to 786 million barrels.
Total product demand decreased (⬇) 234,000 barrels daily to 20.056 million barrels per day.
Gasoline stocks decreased (⬇) 0.2 million barrels from the previous report week; total stocks are 227.8 million barrels.
Demand for gasoline increased (⬆) 78,000 barrels per day to 8.875 million barrels per day.
Distillate fuel oil stocks decreased (⬇) 45,000 barrels from the previous report week; distillate stocks are at 116.4 million barrels. EIA reported national distillate demand at 3.831 million barrels per day during the report week, an increase (⬆) of 342,000 barrels daily.
Propane stocks rose (⬆) 2.9 million barrels from the previous report to 62 million barrels. The report estimated current demand at 548,000 barrels per day, a decrease (⬇) of 273,000 barrels daily from the previous report week.
Natural Gas
Front-month natural gas futures prices continued the advance that began in late April. Natural gas futures settled at $2.626 for the week, following a high of $2.654. An intra-day low of $1.482 was established on April 26th.
Last week’s action pushed price through the 50% Fibonacci retracement level of the bearish move from the October ’23 price high of $3.63. If the bullish tone persists in the market, the next technical upside target is the 61.8% retracement level at approximately $2.80.
However, natural gas price bulls should exercise caution. In addition to pushing through significant Fibonacci retracement levels, natural gas futures prices have also pushed into extremely overbought levels on the Relative Strength Indicator. The last time overbought RSI readings at this level were seen was at the onset of the Russia-Ukraine conflict.
Last week’s action brought prices just a shade below a 50% retracement of the down move that brought prices down from $3.643. This was the level last October before a warm winter built unusually robust inventories.
The EIA report for the week ended May 10 showed an addition to underground storage of 70 Bcf. This was below industry expectations. Yet storage remains more than adequate. Stocks are 19% higher than last year at this time. And they are 31% greater than the average of the past five years for the comparable period.
If the current bullish phase falters, $2.54 stands out as key nearby support. A significant increase in LNG exports or a major change in weather increasing demand through Cooling Degree Days or interfering with production would be required to pull prices significantly higher from current levels.
According to the EIA:
- Net natural gas injections into storage totaled 70 Bcf for the week ended May 10, compared with the five-year (2019–2023) average net injections of 90 Bcf and last year’s net injections of 93 Bcf during the same week. Working natural gas stocks totaled 2,633 Bcf, which is 620 Bcf (31%) more than the five-year average and 421 Bcf (19%) more than last year at this time.
- According to The Desk survey of natural gas analysts, estimates of the weekly net change to working natural gas stocks ranged from net injections of 66 Bcf to 90 Bcf, with a median estimate of 75 Bcf.
Was this helpful? We’d like your feedback.
Please respond to [email protected]
This material has been prepared by a sales or trading employee or agent of Powerhouse Brokers, LLC and is, or is in the nature of, a solicitation. This material is not a research report prepared by Powerhouse Brokers, LLC. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Powerhouse Brokers, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.
Copyright 2024 Powerhouse Brokers, LLC, All rights reserved
