US Energy Self-sufficiency Becomes OPEC’s Target
- Saudi Arabia’s role as production balance wheel is under stress
- Commercial oil stocks fall 8.6 million barrels
- US crude oil production challenges 9 million barrels daily
- Natural gas price rally losing steam
The Matrix
The implications of energy self-sufficiency in the United States continue to unfold. Among them, OPEC’s – and particularly Saudi Arabia’s – role as swing producer is diminishing. As crude oil prices have fallen this year, market watchers expected Saudi Arabia to adjust output in support of price.
In fact, OPEC production has remained strong. Political/military disruptions in Libya and Iraq are not interfering with output from these OPEC nations. Fourth quarter production in Libya is expected to grow around 175,000 barrels daily compared with the third quarter, bring quarterly output to 750,000 barrels per day. Iraq output should add 100,000 barrels per day over this period.
Non-OPEC production (ex-U.S.) has shown growth as well. Offshore Brazil should exceed 2.3 million barrels daily this year. And Russian output continues to exceed ten million barrels per day.
North American production has become the focus of energy balances. And as OPEC demonstrates reluctance to cut supply in support of price, the U.S. will be providing the incremental barrel. Output in the Lower 48 plus Alaska is approaching 8.5 million barrels daily in the fourth quarter. And recovery in the Gulf of Mexico after shut-ins following the Macondo well incident is expected to add 1.6 million barrels per day to supply.
Global demand for oil has slowed perceptibly. Weaker economic growth has reduced oil growth to slightly more than 600,000 barrels daily for the year, below most estimates.
The combination of adequate supply and diminished demand points to lower prices in 2015. One projection puts Brent at $80 per barrel and WTI at $70 per barrel.
Supply/Demand Balances
Supply/demand data in the United States for the week ending October 24, 2014 were released by the Energy Information Administration.
Total commercial stocks of petroleum lost 8.6 million net barrels from inventories. Declines occurred in almost every major petroleum group.
By far the largest reductions occurred in distillates fuel oils where stock levels fell 5.3 million barrels. This reflected demand of 3.9 million barrels per day, a sharp increase from last week’s estimate of 3.3 million barrels daily. U.S. exports of distillate rose too. They moved to 1.341 million barrels per day, an increase of 100,000 barrels daily during the week.
Kero-jet supplies fell 2.3 million barrels during the report week.
Increases were reported in supplies of crude oil, which rose 2.1 million barrels. This was the fifth consecutive weekly increase in inventories. Refinery turnarounds reduced demand for crude oil, adding to stocks. This week, refinery utilization fell only 0.1 percentage points, reflecting perhaps the return to activity of facilities.
A small decline was seen in propane supplies (-0.1 million barrels.) Since March 21st, when stocks bottomed post-winter at 25.7 million barrels, propane has recovered 56 million barrels. Inventories are at record levels.
Gasoline inventories fell 1.2 million barrels. East Coast storage took the bulk of the decline, losing 1.4 million barrels. Stocks in the east remain tight. The decline in gasoline stocks brought inventories to 203.1 million barrels.
Gasoline production declined slightly to 9.1 million barrels per day, a small weekly decline. Last year at this time, production was 9.4 million barrels per day.
Gasoline demand remained steady for the week at 8.8 million barrels per day.
Commercial crude oil stocks were 379.7 million barrels, reflecting a gain of 2.0 million barrels during the report week. The gain was largely on the West Coast, where 1.7 million barrels were added to inventory. The Midwest added 0.6 million barrels to inventories. Cushing, OK stocks gained 0.8 million barrels, now at 21.4 million barrels.
Crude oil stocks are lagging last year’s level by 4.2 million barrels. Last year at this time, stocks were 6.6 million barrels higher than in October, 2012.
Crude oil imports were 7.1 million barrels daily during the report week, lower than the previous week by 376,000 barrels. They were 358,000 barrels less than last year. They lag by 3.6 per cent from the same four-week period last year.
U.S. crude oil production was 8.970 million barrels a day according to the latest report. The Lower 48 states produced 8.478 million barrels daily.
Crude oil inputs to refineries were lower by 79,000 barrels daily, running at 15.1 million barrels per day during the report week. Refinery utilization fell to 86.6 per cent of capacity. This was a weekly decline of 0.1 percentage points.
Propane inventories are 80.3 million barrels, 15.5 million barrels more than last year at this time. Gulf Coast stocks are 43.0 million barrels, down 0.7 million barrels for the week. Midwest stocks were down 0.2 million barrels at 27.5 million barrels.
Natural Gas
According to the EIA: The net injection reported for the week ending October 24 was 87 Bcf, 28 Bcf larger than the five-year average net injection of 59 Bcf and 42 Bcf larger than last year’s net injection of 45 Bcf. Working gas inventories totaled 3,480 Bcf, 294 Bcf (7.8%) less than last year at this time and 310 Bcf (8.2%) below the five-year (2009-13) average. There currently is one more week in the injection season, which traditionally occurs April 1 through October 31, although in each of the past 11 years, injections continued into November. EIA forecast on October 7 that the end-of-October working natural gas inventory level would be 3,532 Bcf, which would require an injection of 52 Bcf the last week of October. EIA’s forecast for the end-of-October inventory levels are below the five-year (2009-13) average peak storage value of 3,855 Bcf.Natural gas futures have been rallying from a low of $3.54 on October 28th. Friday’s high at $3.955 challenges resistance at $4.00. Nonetheless, each day’s rally has labored. The daily gains have diminished and the upper shadow on last Friday’s candlestick is notably long, reflecting rejection of higher prices – a sign of wavering bullishness in natural gas pricing. At press time, natural gas has risen to a new high. Nonetheless, daily action remains labored.
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