Oil Prices May Have Reached a Seasonal Low This week:
- Crude oil prices have bottomed over the past three weeks.
- A counter-seasonal rally in RBOB has reversed.
- ULSD is making higher lows and higher highs.
- Saudi Arabia, the largest crude producer in OPEC, plans to keep output steady until the end of the year. It made the biggest cut in 20 months in August.
The Matrix
The sell-off that has characterized energy pricing since late June may have come to an end. WTI crude oil topped out $107.73 during the week ending June 20, 2014. During the past three weeks, prices have found support around $90.43. The bottoming has not been accompanied by bullish technical signals. It is thus too soon to declare the beginning of a new rally phase. Distillate fuel oil prices reached a low of $2.6550 on Wednesday, September 24th. It has since made higher highs and higher lows. Unlike crude oil futures, the increase in ULSD futures has been confirmed by bullish technical statistics. RBOB futures bottomed at $2.4950 on September 15th. Prices reached $2.7577 on September 25, but have since run into a wall of selling. The rally may have been tied to conversion to winter RVP specs now in effect as well as localized refinery problems. If these are the reasonss, traders might expect ULSD prices to gain on RBOB as autumn advances. Supply/Demand Balances Supply/demand data in the United States for the week ending September 19, 2014 were released by the Energy Information Administration. Total commercial stocks of petroleum rose, adding 0.9 million net barrels to stocks. Increases were reported in supplies of kero-jet (+1.7 million barrels.) Gains were also seen in propane (+1.7 million barrels) and other oils. Distillate fuel oil increased only 0.8 million barrels. Inventory reductions were reported in crude oil (-4.3 million barrels,) gasoline (-0.4 million barrels) and fuel ethanol (-0.2 million barrels.) The reduction in crude oil inventories means that stocks have fallen ten per cent since early May when crude oil stocks were at 397.6 million barrels. Commercial crude oil stocks were 358 million barrels during the report week. Stocks are now 0.3 million barrels behind last year at this time. Most of the decline in crude oil stocks occurred on the West Coast where 2.3 million barrels were lost to inventory. East Coast inventories fell 1.0 million barrels. Gulf Coast inventories lost 1.9 million barrels. Cushing, OK stocks added 0.2 million barrels to reach 20.2 million barrels. The Midwest, overall, increased crude oil stocks by 1.3 million barrels. The high intensity of refinery demand for crude oil continues. It was reflected in a utilization rate of 93.7 per cent. This was a weekly increase of 0.4 percentage points. The fall refinery turnaround, already much attenuated, has not yet impacted supply. Total supplies of crude oil and products stand at 1.140 billion barrels of oil. Current supply of all oils has moved ahead of last year by 19.0 million barrels. Nearly fourteen million barrels of the difference is in propane. Crude oil imports were 6.9 million barrels daily during the report week. Imports were down more than 1.2 million barrels daily for the report week. They lag last year by 4.7 per cent from the same four-week period last year. U.S. crude oil production reached 8.867 million barrels a day according to the latest report. Increases were reported for Alaska. The Lower 48 states produced 8.4 million barrels daily. Crude oil inputs to refineries were modestly lower, running at 16.2 million barrels per day during the report week. Gasoline production fell to 9.135 million barrels per day. Gasoline demand was slightly higher for the week at 8.8 million barrels per day. The decline in gasoline stocks of 0.4 million barrels brought inventories to 210.3 million barrels. Decreases were seen mainly in PADD III, where supplies fell 2.1 million barrels during the report week. Distillate fuel oil supplies built 0.8 million barrels during the report week. The gains were seen on the Gulf Coast. The Midwest and the East Coast lost 0.5 million barrels of supply each. Supplies in the U.S. are 2.3 million barrels below last year’s levels. Distillate fuel oil demand fell 80,000 barrels daily to 3.750 million barrels per day. Refinery production of distillate fuels declined modestly to 4.875 million barrels daily. Propane inventories rose 1.7 million barrels in the U.S. Total stocks are 79.1 million barrels, 13.7 million barrels more than last year at this time. Gulf Coast stocks are 42.2 million barrels, up 0.9 million barrels for the week. Midwest stocks were up 0.7 million barrels.
Natural Gas
According to EIA: The net injection reported for the week ending September 19 was 97 Bcf, 18 Bcf larger than the five-year average net injection of 79 Bcf and 15 Bcf larger than last year’s net injection of 82 Bcf. Working gas inventories totaled 2,988 Bcf, 386 Bcf (11.4%) less than last year at this time and 426 Bcf (12.5%) below the five-year (2009-13) average. Additions to storage for the total injection period starting during the week ending April 4 have reached 2,166 Tcf. For the past five years, comparable injections averaged 1.600 Tcf. There are 6 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 82 Bcf weekly through the end of October to match the 3,477 Bcf level forecast by EIA. Prices remain in a very narrow 33 cent range for the period since July 17th. Support is at $3.75 and resistance at $4.08.
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 03 NO. 39
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