Bearish Events Pressure Energy Prices

  1. Iranian and Greek deadlines loom
  2. Rallies are showing little conviction
  3. Refinery use slows demand for crude oil
  4. No clear path yet for natural gas prices

 

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

The second quarter of 2015 is winding down with little change to show for it. Crude oil prices have traded in a $4.20 range since April 29, between $56.51 and $60.72, a movement of 7.4 percent. Ranges of product prices have been little more dynamic. Both ULSD and RBOB have ranged around twenty five cents during this period with little direction in price.

After falling precipitously through year end, prices bounced. There has been little conviction to the recovery and prices have moved into a slow grind waiting for the other shoe to drop.

There are two candidates for the other shoe. One is Greece. Iran is the other. Both countries face deadlines at month end. An agreement with Iran would likely be bearish for price as new crude oil supplies would be expected to reach market. A failure to reach an accommodation with Greece could lead to Greece’s leaving the Eurozone. Observers expect a flight to the safety of the dollar, bearish for crude oil prices.

The current supply level has some observers declaring the world on the verge of the longest lasting oil surplus in thirty years. They point to OPEC’s policy of pursuing market share at the expense of price as the main reason for so much oil around.

Excess supply – inventory outweighing demand – has lasted for the past five quarters. This is the longest period of excess since 1997’s Asian economic crisis. At current rates of output and consumption, global stocks would create the most enduring excess since 1985 by the third quarter.

The crude oil supply revolution appears likely to be a driving force in energy for a long time to come.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending June 12, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 2.7 million net barrels during the week ending June 12, 2015.

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

Crude oil supplies in the United States decreased to 467.9 million barrels, a draw of 2.7 million barrels from storage. This was the 7th consecutive decline in stocks of crude oil this year.

Crude oil supplies decreased in four of the five PAD Districts. PADD 1 (East Coast) stocks fell 0.2 million barrels. PADD 3 (Gulf Coast) crude oil stocks declined 1.9 million barrels. PADD 4 (Rockies) stocks fell 0.6 million barrels. PAD District 5 (West Coast) storage fell 0.4 million barrels. PADD 2 (Midwest) crude oil stocks experienced an increase of 0.5 million barrels.

Cushing, Oklahoma inventories grew to 58.1 million barrels, an increase of 0.1 million barrels.

Domestic crude oil production decreased 21,000 barrels daily to 9.589 million barrels per day.

Crude oil imports averaged 7.067 million barrels per day, a daily increase of 0.44 million barrels.

Refineries used 93.1 per cent of capacity, a decrease of 1.5 percentage points from the previous week.

Crude oil inputs to refineries fell 294,000 barrels daily; there were 16.282 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 264,000 barrels per day to 16.648 million barrels daily.
Total petroleum product inventories saw an increase of 5.4 million barrels. Gasoline stocks rose 0.5 million barrels; total stocks are 217.8 million barrels.

Total product demand rose 0.188 million barrels daily to 19.971 million barrels per day.

Demand for gasoline decreased 424,000 barrels per day to 9.176 million barrels daily.

Distillate fuel oil supply gained 0.1 million barrels. Stocks are 133.6 million barrels. National demand was reported at 4.117 million barrels per day during the report week. This was a weekly increase of 1,000 barrels daily.

Propane added 1.9 million barrels to supply. There are 80.7 million barrels in storage. Current demand is estimated at 1.038 million barrels per day, an increase of 13,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA: The net injection reported for the week ending June 12 was 89 Bcf, down from 111 Bcf the previous week. This compares with the five-year average increase of 87 Bcf for the week and last year’s increase of 112 Bcf. Working gas inventories for the storage week totaled 2,433 Bcf, 730 Bcf (42.9%) higher than last year at this time and 46 Bcf (1.9%) higher than the five-year (2010-14) average.

Production of dry natural gas slowed during the report week. It fell 0.7 per cent, averaging 71.5 Bcf per day. Analysts have beaten the drum for lower production, probably designed to support a bullish price argument. Current output exceeds last year’s level by 5.1 percent, making it hard to justify the bullish case.

In fact, natural gas has not seen a significant trend since February, 2015 when prices completed a decline from $4.53, seen in the previous November. A range between $2.44 and $3.10 has dominated trading. No clear path out of this range has as yet appeared.

 

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