Bullish Price Expectations Gaining Support

  1. Markets anxious about U.S. disruptive trade practices
  2. Expected price weakness not apparent
  3. Falling crude inventories, high refinery use support bull case
  4. Natural gas could begin withdrawal months with storage below the 5-year average.

 

Al pic 2009_cropped

Sincerely,
Alan Levine, Chairman of Powerhouse
(202) 333-5380
 
 

The Matrix

Markets have been characterized as “anxious” about the effect of disruptive trade policies implemented by the United States. Expectations for a deep dive in stock market prices simply have not emerged as broad indexes continue to reach higher. Such an erosion would be bearish for oil prices, but prices have not softened in recent months.

Without a serious challenge from oversupply or failing demand and a growing economy, oil prices have pressed higher.

The strength of oil markets can be readily understood from U.S. crude oil stocks and the rate at which refineries are being operated. Commercial crude oil stocks were estimated to be 406 million barrels in the most recent (August 18, 2018) Petroleum Balance Sheet. This level challenges recent lows in supply. It is well down from the high of March 31, 2017 when supply topped at 535.5 million barrels in storage.

Crude oil supply has declined 25 per cent. This reflects significant shifts in the structure of the American oil industry that may only now be influencing supply/demand balances. Domestic production of crude oil, of course, is the animating feature of the changing petroleum landscape.

Expanding crude oil output has, in turn, led to creation of a substantial export market. Very timely as well. Production from traditional suppliers has been facing serious headwinds. The situation in Venezuela has been covered extensively, with further reductions expected ahead. Other traditional producers are under pressure and the United States has become the supplier of last resort for many regions beyond Latin America.

Exports of crude oil and petroleum products reached 6.3 million barrels daily in 2017. About two million barrels of that went to Canada and Mexico. The balance included destinations as diverse as China (453 tb/d,) Japan (349 tb/d) and the Netherlands (268 tb/d.) New markets absorbing American shale oils in a bullish global economy leaves little room for soft prices. Hence Powerhouse’s bullish stance on prices.

Supply/Demand Balances

Supply/Demand Balances  Supply/demand data in the United States for the week ending August, 24 2018 were released by the Energy Information Administration.
Total commercial stocks of petroleum fell 1.7 million barrels during the week ending August 24, 2018.
There were draws in stocks of gasoline, fuel ethanol, K-jet fuel, distillate fuel oil, and residual fuel. There were builds in stocks of propane and other oils.

Commercial crude oil supplies in the United States decreased to 405.8 million barrels, a draw of 2.6 million barrels. Crude oil supplies decreased in two of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks fell 2.9 million barrels and PADD 5 (West Coast) crude stocks declined 1.0 million barrels.  PADD 2 (Midwest) stocks rose 1.1 million barrels and PADD 4 (Rockies) stocks increased 0.2 million barrels. Crude oil stocks at PADD 3 (Gulf Coast) were unchanged from the previous report week. Cushing, Oklahoma inventories increased 0.1 million barrels from the previous report week to 24.3 million barrels.

Domestic crude oil production was unchanged from the previous report week at 11.000 million barrels per day.

Crude oil imports averaged 7.485 million barrels per day, a daily decrease of 33,000 barrels per day. Exports increased 624,000 barrels daily to 1.779 million barrels per day.

Refineries used 96.3 per cent of capacity, a decrease of 1.8 percentage points from the previous report week.
Crude oil inputs to refineries decreased 326,000 barrels daily; there were 17.566 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 317,000 barrels daily to 17.919 million barrels daily.
Total petroleum product inventories saw an increase of 0.9 million barrels from the previous report week.

Gasoline stocks decreased 1.6 million barrels from the previous report week; total stocks are 232.8 million barrels.

Demand for gasoline increased 446,000 barrels per day to 9.899 million barrels per day.

Total product demand increased 595,000 barrels daily to 22.137 million barrels per day.

Distillate fuel oil stocks decreased 0.8 million barrels from the previous report week; distillate stocks are 130.0 million barrels. National distillate demand was reported at 4.437 million barrels per day during the report week. This was a weekly increase of 372,000 barrels daily.

Propane stocks rose 2.6 million barrels from the previous report week; propane stock are 71.4 million barrels. Current demand is estimated at 774,000 barrels per day, a decrease of 215,000 barrels daily from the previous report week.

 

Natural Gas

According to the Energy Information Administration:

Net injections exceed the five-year average for the first time in nearly two months. Net injections into storage totaled 70 Bcf for the week ending August 24, compared with the five-year (2013–17) average net injections of 59 Bcf and last year’s net injections of 32 Bcf during the same week. Working gas stocks totaled 2,505 Bcf, which is 588 Bcf lower than the five-year average and 646 Bcf lower than last year at this time.

Working gas stocks are lower than the five-year range for the fourth week in a row. The average rate of net injections into storage is 17% lower than the five-year average so far in the 2018 refill season. If the rate of injections into working gas matches the five-year average of 10.6 Bcf/d for the remainder of the refill season, inventories will total 3,227 Bcf on October 31, which is 333 Bcf lower than the five-year low of 3,560 Bcf. In the Lower 48 states.

 

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