The Matrix

A bearish inventory report was released by the Energy Information Administration for the week ending June 26th. Crude oil continued its slow erosion, breaching near term support at $ 57.50. Prices breaking under $56.50 open the way to support at $51.15. The March low of $42 seems very far away, although not out of the realm of possibility.

Sixty dollars may represent a price maximum at least for now. At higher prices, producers could increase output and hedge their production. This opens the way to lower prices because production hedged at $60 makes the producer indifferent to lower market prices. A soft market would not necessarily halt production.

The crude oil price rally of the second quarter seems now to be failing. Some observers think that global demand has been overstated. And even if not, such demand might not be sustainable. Chinese demand gains, for example, are seen as representing fuel switching from natural gas powered vehicles back to diesel.

Domestic production continues to frustrate bulls. Volumes remain around 9.6 million barrels daily, near all-time highs. Fewer drill rigs have not translated into lower output, reflecting efficiency gains that could give more output with fewer wells this year.

The most recent EIA report showed a build of 2.4 million barrels of commercial crude oil in tanks. This was the first increase in supply in nine weeks. Prior to that, crude stocks had reached 491 million barrels in April and subsequently fell to 463 million barrels on June 19th.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending June 26, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 10.3 million net barrels during the week ending June 26, 2015.

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

Crude oil supplies in the United States increased to 465.4 million barrels, a build of 2.4 million barrels.

Crude oil supplies decreased in three of the five PAD Districts. PADD 1 (East Coast) crude oil stocks experienced a decrease of 1.6 million barrels. PADD 4 (Rockies) crude oil stocks declined 0.1 million barrels.

PAAD District 5 (West Coast) storage fell 0.5 million barrels. PADD 2 (Midwest) stocks rose 0.7 million barrels. PADD 3 (Gulf Coast) stocks increased 3.9 million barrels.

Cushing, Oklahoma inventories increased to 56.4 million barrels, an increase of 0.2 million barrels.

Domestic crude oil production decreased 9,000 barrels daily to 9.595 million barrels per day.

Crude oil imports averaged 7.513 million barrels per day, a daily increase of 0.748 million barrels.

Refineries used 95.0 per cent of capacity, an increase of 1.0 percentage points from the previous week.

Crude oil inputs to refineries declined 1,000 barrels daily; there were 16.531 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 182,000 barrels per day to 16.976 million barrels daily.

Total petroleum product inventories saw an increase of 7.9 million barrels. Gasoline stocks fell 1.8 million barrels; total stocks are 216.7 million barrels.

Total product demand fell 0.952 million barrels daily to 19.730 million barrels per day.

Demand for gasoline increased 75,000 barrels per day to 9.731 million barrels daily.

Distillate fuel oil supply gained 0.4 million barrels. Stocks are 135.8 million barrels. National demand was reported at 3.904 million barrels per day during the report week. This was a weekly increase of 0.296 million barrels daily.

Propane added 1.6 million barrels to supply. There are 83.5 million barrels in storage. Current demand is estimated at 0.890 million barrels per day, a decline of 38,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA: Working gas in storage was 2,577 Bcf as of Friday, June 26, 2015, according to EIA estimates. This represents a net increase of 69 Bcf from the previous week. Stocks were 662 Bcf higher than last year at this time and 29 Bcf above the 5-year average of 2,548 Bcf.

The injection was slightly bullish because it fell short of industry expectations. A modest rally ensued release of the numbers by the EIA, but a long upper candlestick suggested that the gain was probably ephemeral. Prices have been hugging the Bollinger Band midpoint, with little indication of directionality.

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse

 

 

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