Price Support for WTI Breaks
- Indecision boosts price volatility
- EIA and API report widely divergent estimates of U.S. crude oil stocks
- Indecision reflects uncertainly over presidential election, broad economy and interest rates and OPEC production cut
- Natural gas injection rate picks up
Sincerely,
Alan Levine Chairman, Powerhouse
The Matrix
Indecision continues to rule the day in oil prices.
The American Petroleum Institute (API) reported an increase of 4.8 million barrels of crude oil inventory for the week ending October 21, 2016. The Energy Information Administration (EIA) reported a decline of 600,000 barrels in domestic crude oil supply for the same period. When the API data was released, prices fell but did not break support. The far more bullish EIA data initiated a short, sharp rally but this did not hold and prices drifted lower.
Uncertainty about the direction of price reflects broader indecision in the general economy. Three factors that remain unresolved at writing are important when considering the direction of oil prices. The presidential election has proven to be a significant attention getter. Economic policy discussions have been in short supply, creating problems for those trying to determine how the economy might be affected by the outcome.
Interest rates are an important component of the economic outlook. Almost certainly a rate increase is collateral damage of the election season. The September meeting of the Fed left rates unchanged. The Federal Open Market Committee said, “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” This is Fed-speak for the as yet unresolved election, the economy and its hand maidens, inflation and markets.
Uncertainty cannot be more clearly seen than in reactions to the proposed OPEC production cut. Last week, Saudi Arabia and Persian Gulf producers expressed willingness to reduce “peak oil output” by 4%. This has since fallen apart. Libya, Nigeria and Iran are arguing for permission to increase production by 1.5 million barrels daily. And Iraq is arguing for exemption from any cuts in recognition of its many years of conflict-related underproduction.
Supply/Demand Balances
Supply/demand data in the United States for the week ending October 21, 2016, were released by the EIA.
Total commercial stocks of petroleum decreased 8.7 million barrels during the week ending October 21, 2016.
Draws were reported in stocks of gasoline, distillates, residual fuel oil, propane and other oils. Builds were reported in stocks of fuel ethanol and K-jet fuel.
Commercial crude oil supplies in the United States decreased to 468.2 million barrels, a draw of 0.6 million barrels.
Crude oil supplies decreased in two of the five PAD Districts. PADD 2 (Midwest) crude oil stocks fell 1.4 million barrels, and PADD 5 (West Coast) stocks declined 2.2 million barrels.
PAD District 1 (East Coast) crude oil stocks experienced a build of 0.2 million barrels, PADD 3 (Gulf Coast) crude oil stocks expanded 2.0 million barrels and PADD 4 (Rockies) stocks increased 0.9 million barrels.
Cushing, Oklahoma, inventories decreased 1.3 million barrels to 58.4 million barrels.
Domestic crude oil production increased 40,000 barrels daily to 8.504 million barrels per day.
Crude oil imports averaged 7.016 million barrels per day, a daily increase of 109,000 barrels. Exports declined 24,000 barrels daily to 415,000 barrels per day.
Refineries used 85.6% of capacity, an increase of 0.6 percentage points from the previous report week.
Crude oil inputs to refineries increased 182,000 barrels daily; there were 15.552 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 116,000 barrels daily to 15.787 million barrels daily.
Total petroleum product inventories saw a decrease of 8.1 million barrels from the previous report week.
Gasoline stocks declined 2.0 million barrels; total stocks are 226.0 million barrels.
Demand for gasoline increased 320,000 barrels per day to 9.118 million barrels daily.
Total product demand grew 748,000 barrels daily to 20.465 million barrels per day.
Distillate fuel oil supply decreased 3.4 million barrels; total stocks are 152.4 million barrels. National distillate demand was reported at 4.166 million barrels per day during the report week. This was a weekly increase of 179,000 barrels daily.
Propane stocks decreased 2.1 million barrels to 100.6 million barrels. Current demand is estimated at 1.130 million barrels per day, a decrease of 175,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
Net injections into storage totaled 73 Bcf, compared with the five-year (2011 – 2015) average net injection of 76 Bcf and last year’s net injections of 67 Bcf during the same week. The weekly net injection to storage has fallen below the five-year average for 25 straight weeks. However, this week’s report marks the smallest weekly deficit to the five-year average net injection since April 2016.
Although weekly net injections continue to lag behind the five-year average pace, recent injection activity has increased significantly from earlier in the refill season. Weekly net injections so far during the 2016 refill season averaged 48 Bcf per week, while over the past four weeks, the weekly net build averaged 77 Bcf. Working gas stocks for this week total 3,909 Bcf, which is 182 Bcf more than the five-year average and 52 Bcf more than last year at this time.
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