Weekly Energy Market Situation—Nov. 1, 2021

Is the Oil Price Rally Intact?

ULSD futures contract holds its 20-day moving average
U.S. crude oil stocks grow
Cushing, Oklahoma, supply falls to 27.3 million barrels
Winter weather forecasts easing back on cold outlook

Alan Levine—Chairman, Powerhouse
(202) 333-5380

The Matrix

November product futures expired last Friday, adding only a little to our understanding of the oil market’s next move. ULSD settled at $2.4964, near the bottom of October’s range. Nonetheless, it held the 20-day moving average.

Charts of the final days of trading for ULSD showed long lower candlestick shadows, suggesting the market rejected attempts to break support. This was a positive sign for the bulls, but it will take at least a break of resistance at $2.608 to confirm the move higher is still intact.

Similar action occurred for WTI December futures. The 20-day average held, and the two trading days of October 28 and 29 (crude oil futures were not at expiration) showed long lower candlestick shadows.

DOE’s supply/demand data for the week ended Oct. 22, 2021, reported mixed results. Product inventories were unchanged, with RBOB losing two million barrels of supply and ULSD stocks falling only 400,000 barrels. Propane added two million barrels to its supply.

Crude oil stocks gained 4.3 million barrels, almost all of it on the Gulf Coast. DOE reported a growth of 8.6 million barrels in that region. Offsetting that was a Midwest decline of three million barrels. Within that, the WTI pricing point at Cushing, Oklahoma, showed a drop of 3.9 million barrels. (The indicated gain elsewhere was reportedly a diversion of stocks to Patoka, Illinois, in preparation for expected Capline fill in January.)

The decline at Cushing brought inventories to 27.3 million barrels. Supplies are nearing 22.4 million barrels, a low achieved in July 2018. Even lower levels were recorded in July 2014 at 17.9 million barrels. Current levels are nearly 41% below pre-pandemic levels in 2019.

The significance of Cushing’s short supply position is that it brings supply well into the area of minimum operating capacity. (Working capacity at Cushing is about 76 million barrels.) Minimum operating capacity is a level below which it becomes more challenging to operate the system itself. Industry experts see minimum operating capacity at 22 to 25 million barrels.

Cushing, Oklahoma, Stocks 2006 – October 2021 Source: EIA

Supply/Demand Balances

Commercial stocks of petroleum rose 4.4 million barrels during the week ended Oct. 22, 2021.

Commercial crude oil supplies in the United States increased by 4.3 million barrels from the previous report week to 430.8 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Plus 0.1 million barrels to 8.2 million barrels

PADD 2: Down 3 million barrels to 105.5 million barrels

PADD 3: Plus 8.6 million barrels to 247.4 million barrels

PADD 4: Down 0.4 million barrels to 23.2 million barrels

PADD 5: Down 1 million barrels to 46.6 million barrels

Cushing, Oklahoma, inventories were down 3.9 million barrels from the previous report week to 27.3 million barrels.

Domestic crude oil production was UNCH from the previous report week at 11.3 million barrels daily.

Crude oil imports averaged 6.254 million barrels per day, a daily increase of 430,000 barrels. Exports decreased 273,000 barrels daily to 2.787 million barrels per day.

Refineries used 85.1% of capacity; 0.4 percentage points higher from the previous report week.

Crude oil inputs to refineries increased 58,000 barrels daily; there were 15.048 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 76,000 barrels daily to 15.433 million barrels daily.

Total petroleum product inventories rose 0.1 million barrels from the previous report week.

Gasoline stocks decreased 2 million barrels from the previous report week; total stocks are 215.7 million barrels.

Demand for gasoline declined 311,000 barrels per day to 9.323 million barrels per day.

Total product demand decreased 2.001 million barrels daily to 19.832 million barrels per day.

Distillate fuel oil stocks declined 0.4 million barrels from the previous report week; distillate stocks are at 125 million barrels. EIA reported national distillate demand at 3.869 million barrels per day during the report week, a decrease of 409,000 barrels daily.

Propane stocks increased two million barrels from the previous report week; propane stocks are at 75.7 million barrels. The report estimated current demand at 980,000 barrels per day, a decrease of 108,000 barrels daily from the previous report week.

Natural Gas

The natural gas top established on Oct. 6, 2021, at $6.47 has not since been recovered. An attempt to re-try the highs last Wednesday, October 27 failed at $6.29. The week ended on a distinct down note at $5.43. This raises questions of the viability of a continued rally which had been the prevailing expectation with forecasts of colder weather supported by the appearance of a La Nina. Meteorologists appear to have gotten cold feet, easing back on winter cold forecasts.

Moreover, the global situation has developed bearish elements too. Regulatory approval of the Nord Stream 2 pipeline is a step closer to operation as Germany said it would not threaten supplies to the European Union. And Gazprom has been ordered to increase inventories in Europe—where stocks are now low—following rebuilding in Russia.

Natural gas’s next support is found at $5.10 and then $4.75.

According to the EIA:

The net injections into storage totaled 87 Bcf for the week ended October 22, compared with the five-year (2016–2020) average net injections of 62 Bcf and last year’s net injections of 32 Bcf during the same week. Working natural gas stocks totaled 3,548 Bcf, which is 126 Bcf lower than the five-year average and 403 Bcf lower than last year at this time.

The average rate of injections into storage is 5% lower than the five-year average so far in this refill season (April through October). If the rate of injections into storage matched the five-year average of 5 Bcf/d for the remainder of the refill season, the total inventory would be 3,593 Bcf on October 31, which is 126 Bcf lower than the five-year average of 3,719 Bcf for that time of year.

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