Oil Futures Rally Overcomes Bearish Supply Report

  1. Gasoline inventories recovering
  2. ULSD reaches a new high
  3. One analyst expects crude oil prices to test record highs
  4. Natural gas prices now range trading

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


The Matrix

A deal to extend the federal debt ceiling was an important factor in keeping the long-lived rally in spot petroleum futures moving higher. During last week’s market action, prices took a break. The EIA’s weekly supply/demand balance for the week ended Oct. 1, 2021, was generally bearish. Total inventories rose modestly, but commercial crude oil added 2.3 million barrels to stocks.

Powerhouse had noted for some time that gasoline supplies had been shrinking in response to the underutilization of refinery capacity. Only now, with summer driving behind us, are we seeing an increase in RBOB storage. Gasoline storage has recovered such that it is now greater than the five-year low. RBOB futures started this holiday week with a new high at $2.3831.

ULSD broke $2.5, reaching $2.52 before dipping to $2.3 with (inaccurate) rumors of the release of the SPR. Within a day, prices regained most of their value as broader economic issues were asserted.

Uncertainty among analysts about the direction of the economy has given us opinions on many sides of the issue. The only thing that seems sure is OPEC+ intends to keep to their original idea of adding 400,000 barrels daily each month until April 2022. Price expectations have mounted as the current rally perseveres. Forecasts as high as $100 are by now old hat. Record highs are not out of the question.

One way to participate in the rally is to consider the heating oil February 22/April 22 futures spread. We should expect this to widen if supplies remain tight during winter. At this writing, the spread is trading around $0.055. We recommend a GTC stop loss somewhere around $0.032.


Supply/Demand Balances

Supply/demand data in the United States for the week ended Oct. 21, 2021, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose 800,000 barrels during the week ended Oct. 1, 2021.

Commercial crude oil supplies in the United States increased by 2.3 million barrels from the previous report week to 420.9 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Minus 0.9 million barrels to 7.9 million barrels

PADD 2: Plus 2.3 million barrels to 113.4 million barrels

PADD 3: Unchanged at 227.8 million barrels

PADD 4: Minus 0.4 million barrels to 23.1 million barrels

PADD 5: Plus 104 million barrels to 48.7 million barrels


Cushing, Oklahoma, inventories were up 1.5 million barrels from the previous report week to 35.5 million barrels.

Domestic crude oil production was up 200,000 barrels per day from the previous report week to 11.3 million barrels daily.

Crude oil imports averaged 7.035 million barrels per day, a daily increase of 483,000 barrels. Exports fell 906,000 barrels daily to 2.114 million barrels per day.

Refineries used 89.6% of capacity; 1.5 percentage points higher from the previous report week.

Crude oil inputs to refineries increased 329,000 barrels daily; there were 15.744 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 260,000 barrels daily to 16.237 million barrels daily.

Total petroleum product inventories fell 1.6 million barrels from the previous report week.

Gasoline stocks increased 2.3 million barrels from the previous report week; total stocks are 225.1 million barrels.

Demand for gasoline rose 28,000 barrels per day to 9.427 million barrels per day.

Total product demand added 1.135 barrels daily to 21.526 million barrels per day.

Distillate fuel oil stocks dropped 0.4 million barrels from the previous report week; distillate stocks are at 129.3 million barrels. EIA reported national distillate demand at 4.365 million barrels per day during the report week, a gain of 392,000 barrels daily.

Propane stocks declined 0.5 million barrels from the previous report week; propane stocks are at 72.3 million barrels. The report estimated current demand at 1.281 million barrels per day, a growth of 180,000 barrels daily from the previous report week.


Natural Gas

An injection of 118 Bcf in last week’s Natural Gas Weekly Update exceeded industry expectations by nearly 10 Bcf. The implications of such a large injection so late in the inventory-building season are unlikely to change the idea of a winter fighting for supply.

EIA has reported that “2021 industrial natural gas consumption [is] on trend to exceed the 5-year average.” Industrial demand had been on track to record levels in both 2018 and 2019 when consumption exceeded 23.1 Bcf/d in the years’ first seven months. (Data for 2020 reflected COVID-related declines in industrial output. This was particularly important in metals, food and beverage products.)

Consumption has since resumed its growth despite challenges in the first quarter of 2021, (recall the freeze in Texas.) Recovery since April through July has surpassed 2020 and the five-year average. EIA forecasts industrial consumption averaging 24.2 Bcf/d for 2021.

According to the EIA:

The net injections into storage totaled 118 Bcf for the week ended October 1, compared with the five-year (2016–2020) average net injections of 81 Bcf and last year’s net injections of 75 Bcf during the same week. Working natural gas stocks totaled 3,288 Bcf, which is 176 Bcf lower than the five-year average and 532 Bcf lower than last year at this time.

The average rate of injections into storage is 9% lower than the five-year average so far this refill season (April through October). If the rate of injections into storage matched the five-year average of 8.5 Bcf/d for the remainder of the refill season, the total inventory would be 3,543 Bcf on October 31, which is 176 Bcf lower than the five-year average of 3,719 Bcf for that time of year.


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