Oil Market Skeptical Over Production Deal

  1. Crude oil futures sell-off picks up speed
  2. Non-OPEC producers asked to cut up to 900,000 barrels daily
  3. U.S. oil production recovering
  4. Natural gas storage withdrawals begin

Al pic 2009_cropped

Sincerely,
Alan Levine, Chairman of Powerhouse
 
2016-11-28_11-46-35
  

The Matrix

The outcome of the November 30 Organization of the Petroleum Exporting Countries (OPEC) meeting seems to be the only thing that oil market watchers are watching. The broad outlines of the terms of an OPEC/non-OPEC supply-limiting agreement keep shifting. Special consideration for Nigeria and Libya do not appear to be controversial. The situation with respect to Iran remains unclear. Iran may be allowed to freeze output rather than cut it.

The attempt to include non-OPEC producers is a new feature of this production control effort. And here, as with almost everything else in this story, uncertainty abounds. Russia has said it is amenable to a freeze in its production, now put at more than 11 million barrels. Other non-OPEC producers have said that OPEC is asking for cuts from them of between 5 and 880,000 barrels daily.

All of this is occurring at a time when global production is rising. Moreover, crude oil production in the United States is resurgent. The most recent report from the Energy Information Administration (EIA) shows domestic production approaching 8.7 million barrels per day. And with massive new additions to U.S. reserves, the United States is increasingly the real swing producer of the oil industry.

 

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The EIA notes that, “The Permian Basin in Texas and New Mexico is the nation’s most prolific oil producing area. Six formations within the basin have provided the bulk of Permian’s 60% increase in oil output since 2007. Crude oil production in the Permian Basin has increased from a low point of 850,000 barrels per day (bbl/d) in 2007 to 1,350,000 bbl/d in 2013.”

The weekly EIA supply/demand balance shows refinery operations continue to rise. Utilization rates have topped 90%. Crude oil inputs are rising, nearly 16.4 million barrels during the report week. This suggests an increase in product supplies except as exports pull against inventories, but distillate fuel oil exports fell modestly during the report week.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending November 18, 2016, were released by the EIA.

Total commercial stocks of petroleum decreased 0.1 million barrels during the week ending November 18, 2016.

Increases were reported in stocks of gasoline, fuel ethanol, distillates and propane. K-jet fuel, residual fuels and other oils stocks fell.

Commercial crude oil supplies in the United States fell to 489.0 million barrels, a decrease of 1.3 million barrels.

Crude oil supplies increased in three of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks grew 0.1 million barrels and PAD District 2 (Midwest) crude oil stocks added 1.9 million barrels. PADD 4 (Rockies) crude oil stocks increased 0.1 million barrels. PADD 3 (Gulf Coast) stocks decreased 1.8 million barrels and PADD 5 (West Coast) crude stocks fell 1.5 million barrels.

Cushing, Oklahoma, inventories decreased 0.1 million barrels to the previous report week at 59.1 million barrels.

Domestic crude oil production gained 9,000 barrels daily to 8.690 million barrels per day.

Crude oil imports averaged 7.578 million barrels per day, a daily decrease of 0.845 million barrels. Exports fell 12,000 barrels daily to 469,000 barrels per day.

Refineries used 90.8% of capacity, an increase of 1.6 percentage points from the previous report week.

Crude oil inputs to refineries increased 271,000 barrels daily; there were 16.397 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 285,000 barrels daily to 16.734 million barrels daily.

Total petroleum product inventories saw an increase of 1.0 million barrels from the previous report week.

Gasoline stocks added 2.3 million barrels; total stocks are 224.0 million barrels.

Demand for gasoline decreased 335,000 barrels per day to 9.024 million barrels daily.

Total product demand increased 684,000 barrels daily to 20.034 million barrels per day.

Distillate fuel oil supply increased 0.3 million barrels; total stocks are 149.2 million barrels. National distillate demand was reported at 4.121 million barrels per day during the report week. This was a weekly gain of 178,000 barrels daily.

Propane stocks rose 1.8 million barrels to 102.7 million barrels. Current demand is estimated at 820,000 barrels per day, a decrease of 320,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA:

Working gas in storage was 4,045 Bcf as of Friday, November 18, 2016, according to EIA estimates. This represents a net decline of 2 Bcf from the previous week. Stocks were 39 Bcf higher than last year at this time and 241 Bcf above the five-year average of 3,804 Bcf. At 4,045 Bcf, total working gas is above the five-year historical range.

 

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