Oil Pricing Loses Energy

  1. Crude oil volatility falls below 15 percent
  2. Crude oil production makes new high
  3. Propane demand at its five-year high
  4. Effect of IMO on diesel demand to be less than expected
  5. Natural gas sets new records

Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse
 
 
 
 

The Matrix

Uncertainty pervades oil pricing. Crude oil production reached 12.8 million barrels per day in the EIA Supply/Demand Balance for the week ending November 8, 2019. Higher production is bearish. Exports of crude oil topped 2.6 million daily barrels.

Bullish price considerations are available too. A positive outcome of the trade conflict with China in particular comes to mind. Demand for petroleum has been very strong. The Balance Sheet reported demand for all petroleum products at 21.5 million barrels daily.  And gasoline demand at 9.3 million barrels daily is especially notable in November.

Propane Products Supplied – 5-Year Chart 2015 – 2019 source: EIA, POWERHOUSE

Propane is another product with strong demand. Grain drying has been very challenging this year. The wet spring delayed planting. A wet autumn interfered with harvest, causing a spike in calls for propane. And because the drying was late, propane users for drying found themselves in competition with livestock owners buying to warm barns and homes.

The lack of a clear market direction has slowed price movement. Volatility for nearby crude oil has been measured at less than 15 percent.  Since November 4th, crude oil prices have traded in a two dollar range.

A new uncertainty was created for price and availability of fuels. The International Maritime Organization (IMO,) an arm of the United Nations, mandated lower sulfur fuels in ocean-going vessels. This requirement is effective at the beginning of 2020.

Initial expectations were that this new requirement could take 1.5 million barrels of diesel from other uses. This view has since moderated in the analytical community. Analysts now believe that refiners will divert diesel feedstock to IMO-compliant fuels. Refiners may also maximize low-sulfur fuel oil and reduce high-octane gasoline. This is bullish for gasoline and gasoline crack spreads. Another impact of this shift in refining output is a smaller call on demand for diesel, now expected to be 0.9 million barrels daily. (This could be bearish for diesel.)

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending Nov. 8, 2019, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell by 5.9 million barrels during the week ending Nov. 8, 2019.

Commercial crude oil supplies in the United States increased by 2.2 million barrels from the previous report week to 449.0 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: UNCH at 10.5 million barrels
PADD 2: Down 0.9 million barrels to 133.7 million barrels
PADD 3: Plus 2.6 million barrels to 230.2 million barrels
PADD 4: Plus 0.6 million barrels to 23.4 million barrels
PADD 5: Down 0.1 million barrels to 51.1 million barrels

Cushing, Oklahoma inventories fell 1.2 million barrels from the previous report week to 46.5 million barrels.

Domestic crude oil production rose 200,000 barrels per day from the previous report week to 12.8 million barrels daily.

Crude oil imports averaged 5.750 million barrels per day, a daily decrease of 327,000 barrels. Exports rose 262,000 barrels daily to 2.633 million barrels per day.

Refineries used 87.8 percent of capacity, up 1.8% from the previous report week.

Crude oil inputs to refineries increased 237,000 barrels daily; there were 15.761 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 337,000 barrels daily to reach 16.506 million barrels daily.

Total petroleum product inventories fell 8.1 million barrels from the previous report week.

Gasoline stocks increased 1.9 million barrels daily from the previous report week; total stocks are 219.1 million barrels.

Demand for gasoline rose 176,000 barrels per day to 9.321 million barrels per day.

Total product demand increased 366,000 barrels daily to 21.500 million barrels per day.

Distillate fuel oil stocks decreased 2.5 million barrels from the previous report week; distillate stocks are at 116.7 million barrels. EIA reported national distillate demand at 4.534 million barrels per day during the report week, an increase of 239,000 barrels daily.

Propane stocks decreased 2.5 million barrels from the previous report week; propane stocks are 97.7.2 million barrels. The report estimated current demand at 1.484 barrels per day, an increase of 377,000 barrels daily from the previous report week.

 

Natural Gas

The EIA issued the Natural Gas Annual 2018. It reported that the United States “set new records in natural gas production, consumption and exports in 2018. … Several new liquefied natural gas (LNG) facilities came online in 2018, allowing for more exports.“

Natural Gas Dry Production, Consumption, and Exports 2000 -2018 source: EIA

According to the Energy Information Administration:

Net injections into storage totaled 3 Bcf for the week ending November 8, compared with the five-year (2014–18) average net injections of 30 Bcf and last year’s net injections of 42 Bcf during the same week. Working gas stocks totaled 3,732 Bcf, which is 2 Bcf more than the five-year average and 491 Bcf more than last year at this time.

 

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