Crude Oil Bears in Control
- WTI threatens support at $44
- Oil stocks reach new record territory
- Refiners take more capacity off-line
- Natural gas storage breaks 3.8 Tcf.
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
It is often observed that bear markets fall more rapidly than bull markets rally. One trader put it, “Bull markets climb stairs, bear markets fall out of bed.” This reflects the human emotion that underlies all markets, oil markets not the least. As prices increase, traders can make more informed decisions with less pressure. But when markets are under pressure, fear is in the driver’s seat and longs jump out to preserve their cash.
In September, 2013, WTI sold for $110 and open interest was near 1.9 million contracts, the high for that time. Prices fell soon after that, and by the end of 2014 WTI sold for around $55. Open interest contracted to one million contracts, validating the conditions of a bear market.
Throughout 2015, WTI prices have moved between $40 and $60. Open interest recovered to about 1.6 million contracts. Neither price nor open interest has developed any trend.
Powerhouse has noted that the bears appear to be in control. And the latest data released by the Energy Information Administration supports that view.
Total commercial petroleum stocks are climbing rapidly. In the four weeks since September 16th, stocks of all oils have increased 10.8 million barrels. Crude oil inventories have gained 22.6 million barrels. In part, this reflects reduced refinery demand due to turnarounds, but production has slowed only modestly and imports continue at over seven million barrels per day.
Responsible market analysts have called for an (inevitable) price decline to somewhere in the twenty dollar range before any recovery can occur. But prices have resisted the obvious downward path. Support for WTI remains strong at $44 and must be breached before further weakness can develop. Technical analysis is neutral with the Relative Strength Index registering a middling 40 per cent. Seasonal factors tend toward the bullish. Gasoline traders typically start to consider spring positions at this time.
Powerhouse is not calling for a bottom in the oil markets, but the net of relevant factors is not being reflected in a weakening price. Traders must wonder why this is the case.
Supply/Demand Balances
Supply/demand data in the United States for the week ending October 16, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 1.5 million net barrels during the week ending October 16, 2015.
Draws were reported in stocks of RBOB, fuel ethanol, K-jet fuel, distillates, propane, and other oils. A Build was reported in stocks residual fuel oil.
Crude oil supplies in the United States increased to 476.6 million barrels, a build of 8.0 million barrels.
Crude oil supplies increased in three of the five PAD Districts. PADD 1 (East Coast) stocks grew 2.4 million barrels, PADD 2 (Midwest) crude oil stocks increased 2.7 million barrels, and PADD 3 (Gulf Coast) stocks added 4.2 million barrels. Crude oil stocks at PADD 4 (Rockies) were unchanged, and PADD 5 (West Coast) stocks experienced a draw of 1.4 million barrels.
Cushing, Oklahoma inventories decreased to 54.1 million barrels, a draw of 0.1 million barrels.
Domestic crude oil production was unchanged at 9.096 million barrels per day.
Crude oil imports averaged 7.471 million barrels per day, a daily increase of 156,000 barrels.
Refineries used 86.4 per cent of capacity, an increase of 0.4 percentage points from the previous report week.
Crude oil inputs to refineries increased 78,000 barrels daily; there were 15.345 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 60,000 barrels to 15.597 million barrels daily.
Total petroleum product inventories saw a decrease of 6.5 million barrels. Gasoline stocks decreased 1.5 million barrels; total stocks are 219.8 million barrels.
Total product demand increased 4,000 barrels daily to 19.477 million barrels per day.
Demand for gasoline increased 20,000 barrels per day to 9.157 million barrels daily.
Distillate fuel oil supply decreased 2.6 million barrels. National demand was reported at 3.819 million barrels per day during the report week. This was a weekly increase of 200,000 barrels daily.
Propane experienced a decrease of 0.6 million barrels to supply. There are 101.6 million barrels in storage. Current demand is estimated at 1.114 million barrels per day, an increase of 249,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
With a net injection reported for the week ending October 16 of 81 Bcf, inventories rose to 3,814 Bcf, equal to the record storage level for the week reached in 2012. This injection compares with the five-year average increase of 86 Bcf for the week and last year’s increase of 94 Bcf. Working gas inventories for the report week were 434 Bcf (13%) higher than last year at this time and 163 Bcf (4%) higher than the five-year (2010-14) average.
Injections were below expectations. This was not enough to initiate a rally, however, and prices wound up lower on the day. By Friday, natural gas futures, basis December, tested $2.31, a new low in this extended bear market.
Natural gas disposition in the United States has become easier. Exports to Mexico are displacing LNG imports as new export capacity is being brought online. In June, exports to Mexico reached 3.5 Bcf. They are now one-third higher than 2014 year-to-date.
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. 41
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