Falling Stocks Support Oil Prices
- U.S. oil stocks down 5% since July 2016
- Refinery use down since August 2017
- Crude exports were 1.3 million barrels daily
- Natural gas injections up due to decline in power demand
The Matrix
Total petroleum stocks in the United States reached 1.360 trillion barrels in late July, 2016. This was record territory. It reflected rapidly growing U.S. crude oil production. Since then, domestic supplies of crude oil and petroleum products have fallen nearly five per cent. The most recent EIA estimates of inventories are 1.293 trillion barrels.
The decline in domestic supply is attributable to strong product demand, evidenced by high rates of refinery use. Crude oil inputs to refining were most recently 16.3 million barrels daily –lower than the record 17.7 million barrels reached in August, 2017. This lower rate reflects a refinery sector still recovering from the impact of Hurricane Harvey. The pre-hurricane rate is reflected in strong demand which has eaten into U.S. stocks.
The emergence of robust export markets for crude oil and for products, particularly distillate fuel oil and propane, is another factor in supply shrinkage. As domestic production of crude oil from shale expanded, the United States initiated a major shift in U.S. national security policy. In mid-2014, unfettered exports of crude oil were permitted for the first time in many years. Exports rose from about 100,000 barrels daily at that time to 1.4 million barrels per day for the week ending October 6, 2017. This was another drain on U.S. petroleum stocks.
Lower stock levels should support price. WTI crude oil futures currently trade at a discount to Brent, the crude oil used as a standard for overseas supplies. Currently, WTI trades about six dollars below Brent. And a substantial discount should attract more overseas buyers. Technical analysis of the spread between WTI and Brent futures suggests a discount of eleven dollars is possible. This is bullish for U.S. products and crack spreads.
Supply/Demand Balances
Supply/demand data in the United States for the week ending October 06, 2017 were released by the Energy Information Administration.
Total commercial stocks of petroleum decreased 1.7 million barrels during the week ending October 06, 2017.
Builds were reported in stocks of gasoline, propane, and other oils. Draws were reported in stocks of K-jet fuel, distillates, and residual fuel.
Commercial crude oil supplies in the United States decreased to 462.2 million barrels, a draw of 2.7 million barrels.
Crude oil supplies decreased in two of the five PAD Districts. PAD District 3 (Gulf Coast) crude oil stocks fell 4.6 million barrels and PADD 4 (Rockies) crude oil stocks declined 0.7 million barrels. PAD District 1 (East Coast) stocks increased 0.8 million barrels and PADD 5 (West Coast) stocks rose 1.8 million barrels. Crude oil stocks in PADD 2 (Midwest) were unchanged from the previous report week.
Cushing, Oklahoma inventories increased 1.3 million barrels from the previous report week to 63.8 million barrels.
Domestic crude oil production decreased 81,000 barrels daily to 9.480 million barrels per day from the previous report week.
Crude oil imports averaged 7.617 million barrels per day, a daily increase of 403,000 barrels. Exports fell 714,000 barrels daily to 1.270 barrels per day.
Refineries used 89.2 per cent of capacity, an increase of 1.1 percentage points from the previous report week.
Crude oil inputs to refineries increased 229,000 barrels daily; there were 16.258 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 204,000 barrels daily to 16.562 million barrels daily.
Total petroleum product inventories saw an increase of 1.0 million barrels from the previous report week.
Gasoline stocks rose 2.5 million barrels from the previous report week; total stocks are 221.4 million barrels.
Demand for gasoline increased 239,000 barrels per day to 9.480 million barrels daily.
Total product demand increased 2,000 barrels daily to 19.716 million barrels per day.
Distillate fuel oil supply declined 1.5 million barrels from the previous report week to 134.0 million barrels. National distillate demand was reported at 3.648 million barrels per day during the report week. This was a weekly decrease of 359,000 barrels daily.
Propane stocks increased 0.9 million barrels from the previous report week to 78.9 million barrels. Current demand is estimated at 931,000 barrels per day, a decrease of 34,000 barrels daily from the previous report week.
Natural Gas
According to the Energy Information Administration:
Net injections into storage totaled 87 Bcf for the week ending October 6, equivalent to the five-year (2012–16) average net injection of 87 Bcf and higher than last year’s net injections of 79 Bcf during the same week. Declines in power demand for natural gas contributed to increased net injections compared with the previous report week despite declines in natural gas production.
So far during the 2017 refill season, net injections into storage are 15% lower than the comparable five-year average—1,544 Bcf during the 2017 refill season compared with the five-year average increase of 1,817 Bcf. If net injections continue to be 15% lower than the five-year average, then working gas stocks will reach 3,834 Bcf by the end of the refill season. However, working gas stocks will total 3,842 Bcf if net injections into working gas match the five-year average for the remainder of the refill season.
NOAA’s Climate Prediction Center has raised the likelihood of a “weak” La Nina this winter. Last month, CPC put its estimate at 61per cent. It is now 67 per cent.
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