Market “Rebalance” Frustrated by Growing Supply

  1. US crude oil production decline rate slowing
  2. US imports of crude oil recover to nine million barrels daily
  3. US oil export data now available on “near-real-time” basis
  4. Natural gas prices poised to move higher

Al pic 2009_cropped

Alan Levine Chairman, Powerhouse

The Matrix

“Market Rebalancing” has become industry code for supporting global crude oil prices by reducing supply. Such a rebalancing would, of course, imply higher prices. Hence the interest among producers, refiners and financial investors who would most immediately benefit from higher crude oil prices.

In the long run, expectations must meet the test of what actually happens in markets. And data continues to frustrate bulls. Crude oil output in the United States is falling – although the rate of decline is slowing.


The most recent weekly data (August 26, 2016) from the Energy Information Administration were bearish. Imports of crude oil reached nearly nine million barrels daily. Imports have been rising steadily since April. This reflects the position of the United States as refiner of last resort in a global economy facing uncertainty.

Domestic inventories of both crude oil and products are rising. A small decline in weekly product demand may have been reflected in an additional 2.3 million barrels of crude oil and 2.2 million barrels of products.

Hopeful bulls have also been frustrated by improved crude oil situations in several OPEC countries. One large international major oil company noted the “potential return of 1.5 million barrels per day of crude oil from Libya and Nigeria and uncertainty about Iranian and Iraqi production” as barriers to rebalancing. Both Iraq and Iran have reportedly increased crude oil exports by 15% and 13.3% in August. And OPEC overall, is expected to report an export increase of 9.7% more during August than in July.


U.S. Export Data

EIA has long relied on export data from the U.S. Census Bureau to estimate supply data for the United States. These data were sufficient when exports constituted a very small part of U.S. petroleum balances. The ban on crude oil exports has recently been lifted and product exports, particularly gasoline and distillate fuel oil have expanded dramatically.

EIA has developed a new method for estimating exports that tracks data on a “near-real-time basis.” Moving forward, EIA’s “data provides a more accurate estimate of U.S. crude oil, petroleum products, and biofuels exports to better inform EIA’s weekly estimates of domestic petroleum products supplied, a proxy for domestic consumption.”


Supply/Demand Balances

Supply/demand data in the United States for the week ending August 26, 2016 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 4.5 million net barrels during the week ending August 26, 2016.

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

Commercial crude oil supplies in the United States increased to 525.9 million barrels, a build of 2.3 million barrels.

Crude oil supplies increased in four of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks grew 0.2 million barrels, PADD 3 (Gulf Coast) stocks increased 3.0 million barrels, PADD 4 (Rockies) expanded 0.3 million barrels, and PADD 5 (West Coast) stocks increased 0.4 million barrels. PAD District 2 (Midwest) crude oil stocks declined 1.4 million barrels.

Cushing, Oklahoma inventories decreased 1.0 million barrels to 63.9 million barrels.

Domestic crude oil production decreased 60,000 barrels daily to 8.488 million barrels per day.

Crude oil imports averaged 8.917 million barrels per day, a daily increase of 275,000 barrels.

Refineries used 92.8 per cent of capacity, an increase of 0.3 percentage points from the previous report week.

Crude oil inputs to refineries decreased 64,000 barrels daily; there were 16.615 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 70,000 barrels daily to 17.007 million barrels daily.

Total petroleum product inventories saw an increase of 2.2 million barrels from the previous report week.

Gasoline stocks decreased 0.7 million barrels; total stocks are 232.0 million barrels.

Demand for gasoline decreased 148,000 barrels per day to 9.511 million barrels daily.

Total product demand decreased 589,000 barrels daily to 20.152 million barrels per day.

Distillate fuel oil supply increased 1.5 million barrels; total stocks are 154.8 million barrels.  National distillate demand was reported at 3.838 million barrels per day during the report week. This was a weekly increase of 49,000 barrels daily.

Propane stocks increased 2.4 million barrels to 98.5 million barrels. Current demand is estimated at 786,000 barrels per day, a decrease of 10,000 barrels daily from the previous report week.


Natural Gas

According to the Energy Information Administration:

Net injections into storage totaled 51 Bcf, compared with the five-year (2011-15) average net injections of 67 Bcf and last year’s net injections of 88 Bcf during the same week. Working gas stocks total 3,401 Bcf, 334 Bcf above the five-year average and 238 Bcf above last year at this time.

This week marks the 17th consecutive week that the gap of working gas stocks compared with the five-year average declined. When the refill season began on April 1, working gas stocks were 874 Bcf above the five-year average.

During the report week, natural gas prices rallied to $2.907, seemingly ready to advance towards resistance at $3.00. The development of hurricane Hermine slowed that advance and prices cycled between $2.77 and $2.94, apparently waiting to see the extent to which Hermine cut into demand. Damage from Hermine appears to be limited.

Technical analysis of natural gas suggests that, notwithstanding near term weather effects, prices are ready to continue to advance. A move to $3.40 is seen by Elliott Wave technicians.


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