Weekly Energy Market Situation, Sept. 22, 2014

WTI prices are moving lower. Support is at $90.00.
The U.S. Dollar Index continues to run higher. Prices are challenging 85.00, a price not seen since July 2012. This has bearish implications for petroleum prices.
U.S crude oil production reached 8.927 million barrels per day. The last time the U.S. produced at that level was March 1985.
Natural gas storage increased by 90 Bcf, beating estimates.

Sincerely,

Alan Levine
Chairman, Powerhouse

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

Crude oil’s retreat from its late June high of $107.73 moved down to $90.43 during the week ending September 12th. The Dollar Index reached new highs, adding to the weakness in energy prices. Some bullish factors are starting to emerge. Saudi Arabia has moved to support price with production cuts. Moreover, Libya once again faced internal conflict threatening exports. Weakness in China’s economy may be countered with short term stimulus.

Saudi Arabia reportedly reduced output 408,000 barrels daily in August. This was intended to offset increases in output in Iran, Iraq and Nigeria. At the same time, analysts projected the weakest global demand growth since 2011.

Autumn refinery turnarounds are now underway. This is bullish for petroleum product prices. Some market watchers expect about 800,000 barrels of US capacity to be off line this fall.

Supply/Demand Balances

Supply/demand data in the United States for the week ending September 12, 2014 were released by the Energy Information Administration.

Total commercial stocks of petroleum rose, adding 4.9 million net barrels during the report week. Increases were reported in supplies of distillate fuel oil (+0.3 million barrels,) propane (+1.4 million barrels) and K-jet (+2.0 million barrels.) Gasoline stocks fell 1.6 million barrels.

Inventories of crude oil rose 3.7 million barrels. The increase is a minor reversal of the reduction of supplies that began in early May when crude oil stocks were at 397.6 million barrels.

Commercial crude oil stocks were 362.3 million barrels during the report week. Stocks were 6.6 million barrels higher than last year at that time. Most of the increase in crude oil stocks occurred on the West Coast where 2.32 million barrels were added to supplies. East Coast inventories rose 1.4 million barrels. Gulf Coast inventories lost 0.7 million barrels. Cushing, OK stocks fell 0.1 million barrels to 20.0 million barrels.

The high intensity of refinery demand for crude oil was reflected in a utilization rate of 93.0 per cent. This was a weekly reduction of 0.9 percentage points. Notably, East Coast refineries ran at 91.2 per cent of capacity, a gain of 10.2 percentage points during the week ending Sept. 12.

Total supplies of crude oil and products stood at 1.138 billion barrels of oil. Current supply of all oils moved ahead of last year by 19.5 million barrels. This reflects higher production of crude oil and a gain in imports for the report week.

Crude oil imports were 8.1 million barrels daily during the report week. Imports were up nearly 500,000 barrels daily for that week. They lag last year by 3.7 per cent from the same four-week period last year.

U.S. crude oil production reached 8.838 million barrels a day according to the latest report. Increases were reported for both Alaska and the Lower 48 states. Output is approaching a record – at least so far as DOE statistics are available. Production reached 8.927 million barrels daily last during the week ending March 29, 1985.

Crude oil inputs to refineries were unchanged, running at 16.3 million barrels per day during the report week. Evidence of turnarounds has not yet appeared in the numbers.

Gasoline production rose to 9.174 million barrels per day. Gasoline demand was slightly higher for the report week at 8.7 million barrels per day. The higher production probably reflected the high demand rate reported over the past few weeks.

The decline in gasoline stocks of 1.6 million barrels brought inventories to 210.7 million barrels. Decreases were seen mainly in PADD I, where supplies fell 2.5 million barrels during the report week.

Distillate fuel oil supplies built 0.3 million barrels during the report week. The gains were seen in the Midwest and on the East Coasts. Supplies in the U.S. remain 3.3 million barrels below last year’s levels.

Distillate fuel oil demand rose 427,000 barrels daily to 3.8 million barrels per day. Refinery production of distillate fuels declined modestly to 4.9 million barrels daily.

Propane inventories rose 1.4 million barrels in the U.S. Total stocks are 77.4 million barrels, 20.2 million barrels more than last year at this time. Gulf Coast stocks are 41.3 million barrels, up 0.3 million barrels for the week. Midwest stocks were up 1.1 million barrels.

Natural Gas

According to the EIA: Working gas in storage was 2,891 Bcf as of Friday, September 12, 2014, according to EIA estimates. This represents a net increase of 90 Bcf from the previous week. Stocks were 401 Bcf less than last year at this time and 444 Bcf below the 5-year average of 3,335 Bcf.

Additions to storage for the total injection period starting during the week ending April 4 have reached 2,069 Tcf. For the past five years, comparable injections averaged 1.592 Tcf. There are 7 more weeks in the traditional injection season, although injections have continued into November over the past 11 years. Additions to stocks will have to average 84 Bcf weekly through the end of October to match the five-year average peak injection.

The tension between high production and unusually cool summer weather is clearly shown in the price range for spot futures natural gas. Prices have described a very narrow 33 cent range for the period since July 17th. Support is at $3.75 and resistance at $4.08.

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