Crude Oil Cracks Fifty Bucks

  1. Oil stocks reach record near two billion barrels
  2. Oil price moves higher anyway
  3. Propane tops 100 million barrels
  4. Natural gas stocks near four Tcf

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse
 
 power1

 Table covers crude oil and principal products. Other products, including residual fuel oil and “other oils” are not shown, and changes in the stocks of these products are reflected in “Total Petroleum Products.” Statistics Source: Energy Information Administration “Weekly Petroleum Status Report” available at www.eia.doe.gov

 

The Matrix

Petroleum market analysts remain split on the “lower for longer” crude oil price thesis. Bearish commentators view the market as oversupplied. They believe that lower prices are required to permit rebalancing of the market in 2016. Adding to the bearish view, continued interest rate restraint by the Fed implies soft economic activity in the United States.

Data released by the EIA for the week ending October 2 emphasize the tilt lower. Total petroleum stocks, including the SPR, fell barely short of two billion barrels, and are at record highs. The important Gulf Coast crude oil inventory stands at 240.6 million barrels. This is a weekly gain of nearly five million barrels.

More bullish observers believe that reports of worldwide glut are exaggerated. This is based in part on futures price statistics that do not show enough incentive for storage (too little carry) which would occur if there was excess supply. This view is currently being supported by a rally in crude oil.

As the week ended on October 9th, WTI prices reached $50.92. This was the fifth consecutive new daily high and brought price above the late August rally that lifted prices from $37.75 – the low of the entire selloff since June of 2014 when prices topped at $107.73. Elliott Wave analysis estimates a move could extend to $54, completing a five wave advance from the lows.

Propane stocks are building, topping 100 million barrels nationally. This is another new high in a series extending from last June.

 

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Substantial reductions in supply may be hard to come by. An El Nino winter would be warmer and corn production is expected to be four per cent under last year’s record level. One estimate put next spring’s stock level around 65 million barrels, a very high level at which to end winter.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending October 2, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 2.3 million net barrels during the week ending October 2, 2015.

Builds were reported in stocks of RBOB, residual fuel oil, K-jet fuel, and propane. Draws were reported in stocks of distillates and other oils.

Fuel Ethanol was unchanged.

Crude oil supplies in the United States increased to 461.0 million barrels, a build of 3.1 million barrels.

Crude oil supplies decreased in two of the five PAD Districts. PADD 1 (East Coast) stocks fell 0.7 million barrels,and PADD 5 (West Coast) stock experienced a decline of 2.2 million barrels. PADD 2 (Midwest) crude oil stocks grew 0.6 million barrels, stocks at PADD 3 (Gulf Coast) increased 4.9 million barrels, and PADD 4 (Rockies) stocks increased 0.5 million barrels.

Cushing, Oklahoma inventories increased to 53.1 million barrels, a build of 0.1 million barrels.

Domestic crude oil production increased 76,000 barrels daily to 9.172 million barrels per day.

Crude oil imports averaged 7.068 million barrels per day, a daily decrease of 486,000 barrels.

Refineries used 87.5 per cent of capacity, a decrease of 2.3 percentage points from the previous report week.

Crude oil inputs to refineries decreased 403,000 barrels daily; there were 15.559 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 412,000 barrels to 15.770 million barrels daily.

Total petroleum product inventories saw a decrease of 0.8 million barrels. Gasoline stocks grew 1.9 million barrels; total stocks are 223.9 million barrels.

Total product demand decreased 0.717 million barrels daily to 18.875 million barrels per day.

Demand for gasoline decreased 63,000 barrels per day to 8.958 million barrels daily.

Distillate fuel oil supply decreased 2.5 million barrels. National demand was reported at 4.191 million barrels per day during the report week. This was a weekly increase of 429,000 barrels daily.

Propane experienced an increase of 1.6 million barrels to supply. There are 100.3 million barrels in storage. Current demand is estimated at 0.828 million barrels per day, an increase of 36,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA:

The net injection reported for the week ending October 2 was 95 Bcf, down from 98 Bcf the previous week. This injection compares with the five-year average increase of 92 Bcf for the week and last year’s increase of 106 Bcf. Working gas inventories for the report week totaled 3,633 Bcf, 443 Bcf (14%) higher than last year at this time and 155 Bcf (4%) higher than the five-year (2010-14) average.

The most recent natural gas inventory report noted that stocks passed the 2014 peak of 3.6 Tcf. EIA also estimates that working gas in underground storage would reach 3, 956 Bcf by October 31, the end of the traditional injection season. This would require a weekly injection of 108 Bcf.

EIA estimates, “If the rate of net injections follows the 5-year (2010-14) average for the next five weeks, working gas levels will total 3,960 Bcf by November 6.”

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.Vol. PH 04 NO. 40

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