Gasoline Prices Near a Top?
- Gasoline stocks are abundant
- Refining use at 92.4 per cent
- Price charts turning bearish
- Natural gas prices struggling
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
Memorial Day is important in the annual price cycle of petroleum products, especially gasoline. This day often marks the top of the rally that has characterized gasoline prices in the first half of the year.
This year has been typical for gasoline price. Futures prices bottomed on January 13th at $1.2265, completing a six month decline from $3.1520 during the previous June. The 61 per cent decline was, of course, exaggerated by the impact of growing U.S. production of crude oil and the Saudis’ open faucet policy. Nonetheless, the bearish direction is common for summer/autumn gasoline.
This year, gasoline prices have rallied as expected. The height of the rally has not been impressive, suppressed in part by the substantial inventory of gasoline available to the market. Powerhouse’s chart of gasoline inventories demonstrates how gasoline stocks have exceeded the top of the five year range since last autumn.
And the high levels of stock remain in place despite improved demand and impressive new export levels for gasoline. The growth in outflow from the U.S. can be seen in the chart issued by the Energy Information Administration for annual exports through 2014.
Refinery use is growing post spring turnaround. Facilities are operating at 92.4 per cent of capacity, heralding increased supply in the weeks ahead. This could foreshadow weakness in the gasoline price.
Supporting this view, technical indicators may be aligning on the short side. Volatility is pinching Bollinger Bands, a precursor to a sharp exit from the flat trading that has characterized trading in May. The direction of that exit is not clear, but Elliott Wave analysis counts the rally as completing a fourth wave correction, before a fifth wave down.
Supply/Demand Balances
Supply/demand data in the United States for the week ending May 15, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum decreased 2.1 million net barrels during the week ending May 15, 2015.
Builds were reported in stocks of fuel ethanol, residual fuel, propane, and other oils. Declines were experienced in stocks of RBOB and distillate fuel oil. K-jet fuel stocks were unchanged.
Crude oil supplies in the United States decreased to 482.2 million barrels, a draw of 2.7 million barrels from storage. This was the 3rd consecutive decline in stocks of crude oil this year.
Crude oil supplies decreased in three of the five PAD Districts. PADD 2 (Midwest) stocks declined 1.2 million barrels. PADD 4 (Rocky Mountain) crude oil stocks declined 1.1 million barrels. West Coast crude oil stocks (PADD 5) fell 2.2 million barrels. PADD 1 (East Coast) crude oil stocks experienced a build of 0.9 million barrels and PADD 3 (Gulf Coast) stocks increased 0.8 million barrels.
Cushing, Oklahoma inventories fell to 60.4 million barrels, a decrease of 0.3 million barrels.
Domestic crude oil production decreased 112,000 barrels daily. This decline in production came from Alaska – output in the lower 48 was unchanged at 8.870 million barrels daily.
Crude oil imports averaged 7.199 million barrels per day, a daily increase of 318,000 barrels.
Refineries used 92.4 per cent of capacity, an increase of 1.2 percentage points from the previous week.
Crude oil inputs to refineries rose 245,000 barrels daily; there were 16.213 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 220,000 barrels per day to 16.522 million barrels daily.
Total petroleum product inventories saw an increase of 0.6 million barrels. Gasoline stocks declined 2.8 million barrels.
Total product demand declined 0.416 million barrels daily to 20.235 million barrels per day.
Demand for gasoline rose 60,000 barrels per day to 9.261 million barrels daily.
Distillate fuel oil supply lost 0.5 million barrels. Stocks are 127.7 million barrels. National demand was reported at 4.161 million barrels per day during the report week. This was a weekly decrease of 363,000 barrels daily.
Propane added 2.6 million barrels to supply. There are 71.0 million barrels in storage. Current demand is estimated at 0.863 million barrels per day, a decline of 128,000 barrels daily from the previous report week.
Natural Gas
According to EIA: The net natural gas storage injection was larger than the five-year average build but lower than last year. The net injection reported for the week ending May 15 was 92 Bcf, down from 111 Bcf the previous week. This level compares with the five-year average net increase of 89 Bcf for that week and last year’s net increase of 106 Bcf. Working gas inventories for the storage week totaled 1,989 Bcf, 738 Bcf (59.0%) higher than last year at this time and 35 Bcf (1.7%) lower than the five-year (2010-14) average.
There are currently 24 more weeks in the injection season, which traditionally runs from April 1 through October 31, although in many years injections continue into November. EIA forecasts that the end-of-October working natural gas inventory level will be 3,890 Bcf, which, as of May 15, would require an average injection of 79 Bcf per week through the end of October.
Natural gas prices have increased nearly 25 per cent, from the April 28th low of $2.488 to last Wednesday’s high water mark of $3.105. The high could not be sustained, however. Strength gave way to weakness, closing near the lows on May 19th. This pattern repeated on Thursday, May 21st. Natural gas prices appear to be weakening.
Elliott Wave counts are bullish, but call for a correction before moving higher.
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. 20
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