Oil Market Facing Conflicted Outlook

  1. Market hopes for positive Trade War resolution
  2. Supply situation is seen largely bearish
  3. IMF downgrades 2019 economic growth to 3 percent
  4. Natural gas supplies are 506 Bcf more than last year

Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse
 
 

The Matrix

The overarching challenges facing oil markets have not been resolved. There are hopes that the trade war between the United States and China will end soon with a positive result.

OPEC+ is reportedly set to extend its production cuts through mid-2020. This could defer any decision to add to further cuts to support prices. The state of the global economy may be a barrier to OPEC’s plan. Extending production cuts is not the same as instituting lower levels of output.

Russia has indicated its reluctance to cut further. About two-thirds of Russian crude oil is produced in Siberia. The physical environment there is very harsh. Some experts suggest that an oil well could explode if shut-in during frozen conditions. Ironically, temperatures of minus 58 degrees Fahrenheit could cause a production decline, supporting the OPEC+ objective anyway.

Libya is another OPEC producer seeking to add to its output. The country is producing 1.25 million barrels daily. It expects to reach 1.5 million barrels per day in 2020. Libya projects an output of 2.1 million daily barrels by 2024.

The International Monetary Fund has noted, “The global economy is in a synchronized slow down, and we are, once again, downgrading growth for 2019 to 3 percent, its slowest pace since the global financial crisis. Growth continues to be weakened by rising trade barriers and increasing geopolitical tensions.” Weaker growth should be a barrier to any significant price advance.

New crude oil supply has reached the market. The United States is adding to inventories. Other producer-nations are ramping up supplies. Bullish trade war anticipation and bearish supply data are holding prices range-bound.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending Nov. 15, 2019, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell by 5.0 million barrels during the week ending Nov. 15, 2019.

Commercial crude oil supplies in the United States increased by 1.4 million barrels from the previous report week to 450.4 Plusmillion barrels.

Crude oil inventory changes by PAD District:
PADD 1: Plus at 10.7 million barrels
PADD 2: Minus 2.2 million barrels to 131.5 million barrels
PADD 3: Plus 1.6 million barrels to 231.8 million barrels
PADD 4: Plus 1.4 million barrels to 24.8 million barrels
PADD 5: Plus 0.5 million barrels to 51.6 million barrels

Cushing, Oklahoma inventories fell 2.3 million barrels from the previous report week to 44.2 million barrels.

Domestic crude oil production was unchanged from the previous report week at 12.8 million barrels daily.

Crude oil imports averaged 6.0 million barrels per day, a daily increase of 222,000 barrels. Exports rose 394,000 barrels daily to 3.027 million barrels per day.

Refineries used 89.5 percent of capacity, up 1.7 percentage points from the previous report week.

Crude oil inputs to refineries increased 519,000 barrels daily; there were 16.435 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 323,000 barrels daily to reach 16.829 million barrels daily.

Total petroleum product inventories fell 5.0 million barrels from the previous report week.

Gasoline stocks increased 1.8 million barrels daily from the previous report week; total stocks are 220.8 million barrels.

Gasoline stocks increased 1.8 million barrels daily from the previous report week; total stocks are 220.8 million barrels.

Demand for gasoline fell 129,000 barrels per day to 9.192 million barrels per day.

Total product demand decreased 269,000 barrels daily to 21.231 million barrels per day.

Distillate fuel oil stocks decreased 1.0 million barrels from the previous report week; distillate stocks are at 115.7 million barrels. EIA reported national distillate demand at 4.323 million barrels per day during the report week, a decrease of 211,000 barrels daily.

Propane stocks decreased 3.4 million barrels from the previous report week; propane stocks are 94.2 million barrels. The report estimated current demand at 1.394 barrels. The report estimated current demand at 1.394 barrels per day, a decrease of 91,000 barrels daily from the previous report week.

 

Natural Gas

According to the Energy Information Administration:

The net withdrawal from storage totaled 94 Bcf for the week ending November 15, compared with the five-year (2014–18) average net withdrawal of 32 Bcf and last year’s net withdrawal of 109 Bcf during the same week. Working natural gas stocks totaled 3,638 Bcf, which is 60 Bcf lower than the five-year average and 506 Bcf more than last year at this time.

 

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.

Powerhouse is a registered affiliate of Coquest, Inc.
Was this helpful?  We’d like your feedback.
Please respond to alan@powerhouseTL.com

Copyright© 2019 Powerhouse, All rights reserved.