Crude Oil Production Weighs on Market Price

  1. Crude oil price recovery comes up short
  2. U.S. was world’s largest oil and gas producer in 2014
  3. Refinery use reaches new high for 2015
  4. Natural gas injection brings storage above 5-year average

 

Al pic 2009_cropped

Sincerely,
Alan Levine Chairman, Powerhouse
 

power1

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

It is almost a year since crude oil prices started to fall. WTI crude oil topped at $107.73 during the week ending June 20, 2014. Prices tumbled over the next seven months, bottoming at $43.58 late in January. Since then, prices recovered, but the rally has not topped $62.58 – well below $68.09, a technically minimal upside objective.

The inability to move the crude oil price higher reflects continuing high levels of crude oil production from OPEC and the United States. OPEC, at its meeting just concluded, confirmed continuing production at 31 million barrels daily, about one million barrels per day more than its official quota.

The International Energy Agency reports “exceptionally high” output among non-OPEC producers. The Agency anticipates those producers will see 2015 growth to nearly one million barrels daily.

United States production is a large component of that growth. In fact, the U.S. was the largest oil and natural gas producer in the world in 2014. BP’s Statistical Review reported that U.S. output of crude oil rose 1.6 million barrels daily in 2014. EIA reported crude oil output at 9.6 million barrels per day in its most recent weekly report, approaching all time production levels. High levels of crude oil production have not been enough to soften prices. Since early May, WTI prices have generally ranged between $58 and $62. A break of this range will be necessary to determine direction.

Demand has picked up because of low prices. IEA forecasts demand growth globally at 1.4 million barrels daily, averaging 94 million barrels per day in 2015. Gasoline demand growth is expected to be 4.2 percent in the U.S. Vehicle miles driven in the first quarter were up 3.8 percent.

Supply/Demand Balances

Supply/demand data in the United States for the week ending June 5, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum decreased 0.6 million net barrels during the week ending June 5, 2015.

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

Crude oil supplies in the United States decreased to 470.6 million barrels, a draw of 6.8 million barrels from storage. This was the 6th consecutive decline in stocks of crude oil this year.

Crude oil supplies decreased in four of the five PAD Districts. PADD 2 (Midwest) crude oil stocks experienced a decline of 3.0 million barrels. PADD 3 (Gulf Coast) crude oil stocks declined 1.8 million barrels. PADD 4 (Rockies) stocks fell 0.9 million barrels. PAD District 5 (West Coast) storage fell 1.3 million barrels. PADD 1 (East Coast) stocks rose 0.3 million barrels.

Cushing, Oklahoma inventories fell to 58.0 million barrels, a decrease of 1.0 million barrels.

Domestic crude oil production increased 24,000 barrels daily to 9.610 million barrels per day.

Crude oil imports averaged 6.623 million barrels per day, a daily decrease of 0.75 million barrels.

Refineries used 94.6 per cent of capacity, an increase of 1.4 percentage points from the previous week.

Crude oil inputs to refineries rose 169,000 barrels daily; there were 16.576 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 250,000 barrels per day to 16.912 million barrels daily.

Total petroleum product inventories saw an increase of 6.2 million barrels. Gasoline stocks declined 2.9 million barrels.

Total product demand rose 0.906 million barrels daily to 19.783 million barrels per day.

Demand for gasoline increased 622,000 barrels per day to 9.6 million barrels daily.

Distillate fuel oil supply gained 0.9 million barrels. Stocks are 133.5 million barrels. National demand was reported at 4.115 million barrels per day during the report week. This was a weekly increase of 592,000 barrels daily.

Propane added 1.7 million barrels to supply. There are 78.8 million barrels in storage. Current demand is estimated at 1.024 million barrels per day, an increase of 322,000 barrels daily from the previous report week.

Natural Gas

According to the EIA: A large weekly addition pushed natural gas stocks above their five-year average. Working natural gas in storage surpassed the five-year (2010-14) average level with a net injection of 132 billion cubic feet (Bcf) for the week ending May 29. This was one of the largest implied weekly net injections ever reported in EIA’s Weekly Natural Gas Storage Report, raising stocks to 2,233 Bcf, 22 Bcf (1%) above the five-year average and 751 Bcf (51%) above this same week last year.

Working natural gas inventories at the beginning of the 2015 injection season on April 1 totaled 1,476 Bcf, which was 10.5%, or 173 Bcf, below the five-year average. Inventories in 2014, following a strong 2013-14 winter withdrawal season that led to stocks falling to a 10-year 2014.

 

power2

 

There are currently 22 more weeks in the injection season, which traditionally runs from April 1 through October 31. EIA forecasts that the end-of-October working natural gas inventory level will be 3,890 Bcf, which, as of May 29, would require an average injection of 75 Bcf per week through the end of October.

 

 

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 04 NO. 23

Was this memo helpful?  We’d like your feedback. Please respond to alan@powerhouseTL.com Copyright © 2014 Powerhouse, All rights reserved.