Crude Oil Exports Bolster U.S. Status in Global Geopolitics

  1. Crude oil exports to Asia reach record in August
  2. Tariff wars inject near-term uncertainty to price but not to long-term position of U.S. in global markets
  3. Propane prices may be bottoming
  4. Natural gas storage approaches five-year average

Al pic 2009_cropped

Alan Levine, Chairman of Powerhouse
 
 
 

The Matrix

Supply and distribution have undergone massive shifts in the petroleum industry. The steady advance of production from shale has put the United States at the top of the supply chain. Crude oil exports from the United States, permitted only for the past four years, have increased the country’s influence in global economic affairs.

One recent analysis pointed out Asian imports of U.S. crude oil reached a record in August. Some of this gain reflected a price advantage for U.S. crude oils over Brent and Bonny Light, an export stream from Nigeria. In mid-June, WTI was about $9.25 cheaper than Brent. The WTI advantage fell to $4.55 by late August.

The effect of tariffs imposed by the U.S. and China could lead to more competitive pricing, but the fact of substantial physical supply of U.S. crude oil is a recent phenomenon that offers an alternative to buyers. This could open new geopolitical options to Asian nations. The largest buyers of U.S. crude oil are South Korea, Japan and India.

Propane has become an important component of the petroleum supply/demand balance. The EIA showed propane (and propylene) stocks of 97 million barrels for the week ending August 30. This was a weekly gain of 2.8 million barrels. Supplies are 32.1percent higher than last year at this time.

The growth in propane stocks reflected slowing exports and continuing production. Moreover, a late start to the grain drying season this year has added to the bulge in propane stocks.

Notwithstanding the substantial inventory position, technical analysis tells a different story.

A propane price chart through September 4, 2019 suggests a bottoming of prices.

The chart shows prices reaching a low just below $0.40. Prices have moved higher since then. The chart also shows an Elliott Wave count with a completed Fifth Wave. This is more support for the idea of bottoming.

Elliott Wave provides an alternative 5th wave objective using Fibonacci relationship. This would come into play if we break below approximately $0.37 basis front month.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending August 30, 2019, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell by 4.9 million barrels during the week ending August 30, 2019.

Commercial crude oil supplies in the United States declined 4.8 million barrels from the previous report week to 423.0 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Unchanged from the previous report week at 11.0 million barrels
PADD 2: Down 0.3 million barrels to 124.8 million barrels
PADD 3: Down 3.6 million barrels to 220.4 million barrels
PADD 4: Down 0.4 million barrels to 20.0 million barrels
PADD 5: Down 0.4 million barrels to 46.8 million barrels

Cushing, Oklahoma inventories fell 0.3 million barrels from the previous report week to 40.1 million barrels.

Domestic crude oil production fell 100,000 barrels daily to 12.4 million barrels per day.

Crude oil imports averaged 6.904 million barrels per day, a daily increase of 976,000 barrels. Exports rose 42,000 barrels daily to 3.061 million barrels per day.

Refineries used 94.8 percent of capacity, down 0.4% from the previous report week.

Crude oil inputs to refineries decreased 27,000 barrels daily; there were 17.381 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, declined 82,000 barrels daily to reach 17.824 million barrels daily.

Total petroleum product inventories fell 0.1 million barrels from the previous report week.

Gasoline stocks decreased 2.4 million barrels daily from the previous report week; total stocks are 229.6 million barrels.

Demand for gasoline fell 429,000 barrels per day to 9.471 million barrels per day.

Total product demand decreased 588,000 barrels daily to 21.621 million barrels per day.

Distillate fuel oil stocks decreased 2.5 million barrels from the previous report week; distillate stocks are at 133.5 million barrels. EIA reported national distillate demand at 4.134 million barrels per day during the report week, an increase of 85,000 barrels daily.

Propane stocks increased 2.9 million barrels from the previous report week; propane stocks are 97.0 million barrels. The report estimated current demand at 985,000 barrels per day, an increase of 165,000 barrels daily from the previous report week.

 

Natural Gas

Natural gas, after a steady rally off its lows, has run into resistance. An upside objective of $2.50 is ahead.

According to the Energy Information Administration:

Net injections into storage totaled 84 Bcf for the week ending August 30, compared with the five-year (2014–18) average net injections of 66 Bcf and last year’s net injections of 64 Bcf during the same week. Working gas stocks totaled 2,941 Bcf, which is 82 Bcf lower than the five-year average and 383 Bcf more than last year at this time.

The average rate of net injections into storage is 30% higher than the five-year average so far in the refill season (April through October). If the rate of injections into storage matched the five-year average of 10.8 Bcf/d for the remainder of the refill season, total inventories would be 3,610 Bcf on October 31, which is 82 Bcf lower than the five-year average of 3,692 Bcf for that time of year.

 

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