Weekly Energy Market Situation, May 5, 2014

Unemployment continues to fall and new jobs are being added at rates not seen since 2008.

Gasoline output exceeded 10 million barrels per day during the week ending April 25th. This is a record level of output.

Directionality is hard to find in energy prices. Prices remain largely range bound

Natural gas stocks are at an eleven year low of 981 Bcf.

Sincerely,

Alan Levine
Chairman, Powerhouse

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

Unemployment data for April showed a decline in the rate to 6.3 per cent from March’s 6.7 per cent. The drop reflected 288, 000 new jobs added to payrolls, as well as a decline in the labor force. New jobs were found broadly across industrial sectors. Construction added 32,000 jobs and, perhaps more importantly because the jobs are higher paying, professional and technical services gained 25,100 positions.

All May futures contracts have expired. Gasoline futures now have a large gap in the price charts. May futures terminated at $3.0077. June gasoline futures opened at $2.9647. The resulting $0.0430 gap remains open at writing. Gasoline prices have given up nearly twenty cents since topping out in mid-April with no consolidation yet. Support below is at $2.8755. An earlier price gap, related to the switch to summer grade gasoline is closed at $2.7961, representing further support.

ULSD remains range bound. Prices are trading around $2.92 with support at $2.85. The market is approaching oversold conditions. Heating oil has been trading in a range since 2011. Prices will have to break $2.80 or recover to the top of the range at $3.20 before a direction can be declared.

Supply/Demand Balances

Supply/demand data for the week ending April 25, 2014 were released by the Energy Information Administration.

Total commercial stocks of oil rose 7.0 million barrels. Commercial crude oil supplies rose 1.7 million barrels during the report week. (Stocks in the Strategic Petroleum Reserve fell one million barrels.)

Refinery utilization rates maintained 91 per cent of capacity, unchanged from the prior week. East Coast facilities operated at 90.6 per cent of capacity, a further gain of six percentage points during the week.

Crude oil runs to stills fell slightly. Small increases on the East Coast and in the Midwest were offset by a decline of 148,000 barrels daily on the Gulf Coast. This result is surprising in view of the reported production of gasoline which exceeded ten million barrels daily, reportedly the highest level ever recorded by the Energy Information Administration.

PADD III crude oil stocks rose yet again. 5.7 million barrels were added to inventory. Crude oil stocks are now 215.3 million barrels according to EIA. Inventory gains reflected the continuing transfer of crude oil from Cushing, OK.

Cushing OK stocks continued their decline. There are now 25.4 million barrels of crude oil in inventory. Nationally, crude oil imports fell 313,000 barrels daily to 7.5 million barrels daily.

Gasoline stocks added 1.6 barrels to supply during the report week. Modest changes were seen on the East, West and Gulf Coasts. Demand for gasoline rose too, moving to 8.7 million barrels daily during the report week. Over a longer horizon, the average demand for the past four weeks is 8.7 million barrels per day, 2.1 per cent higher than last year at this time.

Distillate fuel oil supplies rose 1.9 million barrels during the report week to 114.4 million barrels. Supplies in the U.S. lag last year’s levels by 1.3 million barrels. East Coast storage grew to 33.6 million barrels. Distillate fuel oil demand was 3.9 million barrels daily.

Propane inventories added 2 million barrels in the U.S. PADD II stocks themselves accounted for half of the gain. Propane demand was down slightly at 943,000 barrels per day.

Natural Gas

According to the EIA: The net injection reported for the week ending April 25 was 82 Bcf, 24 Bcf larger than the 5-year average net injection of 58 Bcf and 41 Bcf larger than last year’s net injection of 41 Bcf. Working gas inventories totaled 981 Bcf, 790 Bcf (44.6%) less than last year at this time, 984 Bcf (50.1%) below the 5-year (2009-13) average, and 735 Bcf (42.8%) below the 5-year observed minimum.

This was the fourth consecutive week of net storage injections, which this year began in the week ending on April 4. Over this period, cumulative net injections totaled 163 Bcf, a 53% increase when compared to the same weeks in 2013, but only 8% above the 5-year average for these weeks of 151 Bcf. Total Lower 48 working inventories were at an 11-year low. This was well below the 2009-13 minimum for that week of 1,716 Bcf. It is also the latest point in the year that inventories have remained below 1,000 Bcf since 2003.

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 03 NO. 18