Crude Oil Stocks Decline Accelerates

  1. Fall in crude oil stocks brings supply to April, 2016 levels
  2. Declines seen in crude oil production and imports
  3. Barriers now inhibit further price advances
  4. Bearish natural gas balances again reported

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 erosion of domestic crude oil supply continued according to the Energy Information Administration. Stocks of crude oil fell more than four million barrels during the week ending May 20, 2016. This was the second consecutive weekly decline in crude stocks. It was large enough to set supply back to levels last seen in early April.

The reduction reflected crude oil imports falling 362,000 barrels daily. There is also a continuing slowdown in domestic production which came in at 8.767 million barrels daily. Domestic production has now fallen nearly one million barrels per day below its April 2015 peak of 9.6 million barrels daily. Output has returned to levels last seen in October, 2014.

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Technology gains on crude oil production from shale fracturing and a concerted effort by Saudi Arabia to flood the market brought prices to new lows at $26.05 in February. Prices have since nearly doubled, piercing $50 for the first time since last October, reflecting slowing shale oil production in the United States and a series of overseas disruptions to supply. These include issues in Nigeria and the residual of extended fires in Alberta discussed in last week’s Report. There have also been interruptions in Libya and Kuwait that could have taken an added one million barrels daily from the market.

Technical resistance stands at $60, seen last in the second quarter of 2015. Nonetheless, there are serious questions whether this rally can be sustained. Higher prices invite new production and current levels could, for many producers, justify establishment of new short hedges.

The underlying issue, of course, is what might be the reaction of Saudi Arabia and Iran to the improved price situation. Iranian output is likely to exceed last May’s level by sixty per cent and Saudi Arabia offers that it could “easily” boost output to 12.5 million barrels daily. If the Saudis wish to fight for market share and, not coincidentally, harm its competitors, expanded crude oil exports could serve to put a lid on prices.

Supply/Demand Balances

Supply/demand data in the United States for the week ending May 20, 2016 were released by the Energy Information Administration.

Total commercial stocks of petroleum decreased 0.9 million net barrels during the week ending May 20th, 2016.

Builds were reported in stocks of gasoline, and other oils. Draws were reported in stocks of fuel ethanol, distillates, residual fuel oil, and propane. Stocks of K-jet fuel were unchanged from the previous report week.

Crude oil supplies in the United States decreased to 537.1 million barrels, a draw of 4.2 million barrels.

Crude oil supplies decreased in four of the five of the PAD Districts. PAD District 1 (East Coast) crude oil stocks fell 0.7 million barrels, PADD 2 (Midwest) crude stocks decreased 0.7 million barrels, PADD 3 (Gulf Coast) stocks declined 3.6 million barrels, and PADD 4 (Rockies) stocks decreased 0.8 million barrels. PAD District 5 (West Coast) crude oil stocks increased 1.6 million barrels.

Cushing, Oklahoma inventories decreased 0.7 million barrels to 67.6 million barrels.

Domestic crude oil production decreased 24,000 barrels daily to 8.767 million barrels per day.

Crude oil imports averaged 7.315 million barrels per day, a daily decrease of 362,000 barrels.

Refineries used 89.7 per cent of capacity, a decrease of 0.8 percentage point from the previous report week.

Crude oil inputs to refineries decreased 92,000 barrels daily; there were 16.279 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 135,000 barrels to 16.435 million barrels daily.

Total petroleum product inventories saw an increase of 3.3 million barrels from the previous report week.

Gasoline stocks increased 2.0 million barrels; total stocks are 240.1 million barrels.

Demand for gasoline decreased 239,000 barrels per day to 9.516 million barrels daily.

Total product demand decreased 337,000 barrels daily to 20.438 million barrels per day.

Distillate fuel oil supply decreased 1.3 million barrels; total stocks are 150.9 million barrels.  National distillate demand was reported at 4.088 million barrels per day during the report week. This was a weekly decrease of 237,000 barrels daily.

Propane stocks decreased 0.1 million barrels to 74.1 million barrels. Current demand is estimated at 1.155 million barrels per day, an increase of 148,000 barrels daily from the previous report week.

Natural Gas

According to the Energy Information Administration:

Working gas in the Lower 48 states posted its sixth straight week of net injections. Net injections into storage totaled 71 Bcf during the storage report week, compared with the five-year (2011-15) average of 97 Bcf and last year’s net injection of 106 Bcf during the same week. As a result, the surplus in storage compared with the five-year average declined from the previous week to 769 Bcf, and the surplus compared with year-ago levels decreased to 756 Bcf.

The supply/demand balance for the report week reflected flat supply and softer demand. Production of dry gas averaged 74 Bcf. Net imports from Canada fell one per cent, accounting for 6 Bcf/d of supply. Consumption fell four per cent over the period because of declines in demand from residential and commercial users.

 

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