Oil Prices Poised Between Bulls and Bears
- Analysts split between bulls at $85 and bears in the ‘twenties
- Commercial U.S. oil stocks at record levels
- Gasoline demand falls below 9 million barrels daily
- Natural gas stocks push toward top of 5-year range
Also, please be advised about New Hours Starting Today for Futures Markets: Starting today NYMEX products traded on Globex will close at 5:00pm each day (in the past markets closed at 5:15pm). Markets will re-open at 6:00pm. These changes will be permanent.
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
Bullish crude oil and bearish petroleum product inventories for the week ending September 11, 2015 did not neutralize oil prices. They may be poised for a move higher. Autumn is a time of refinery turnarounds and heightened demand for agricultural harvest.
More globally, crude oil prices have been trading in a range. Prices for crude oil are in the mid-‘40’s. Traditional analysis of oil markets had many analysts forecasting recoveries back into at least the eighty dollar range. But the changing landscape has split the analytical community into bullish and bearish camps. New shale oil technology and attempts to keep prices lower by OPEC’s efforts to maximize production are new factors to be considered in projecting price. They have led to wildly different expectations.
The bearish case has been characterized as “lower for longer.” Bearish analysts now expect the crude oil oversupply to last through 2016. Several reasons for this have been proposed. High crude oil inventories can be expected to persist because OPEC production growth will continue to contribute to oversupply. Another bearish consideration is that sunk investment costs will allow non-OPEC, non-U.S. production to advance.
The supply imbalance has led to lowered price expectations among bearish analysts. One leading group has reduced its forecast for 2016 to $45 from an earlier expectation of $57. Achieving balance may prove difficult reflecting improved drilling efficiency. Oversupply will clear at some price, but that price could be in the $20 range in the current situation.
Price bulls are taking the view that the markets will improve in 2016. They believe that the market is not nearly as oversupplied as many believe. This reflects the idea that measures of oil supply do not accurately reflect availability. They are based on total supply of liquids, implying that all oils are fungible. In reality, refiners manufacture the product most needed and most profitable. This creates wide variations in crude oil balances. If demand grows, price bulls see equilibrium returning late in 2016. Bullish analysts expect prices to recover toward $85, basis Brent, by 2018.
Supply/Demand Balances
Supply/demand data in the United States for the week ending September 11, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 8.5 million net barrels during the week ending September 11, 2015.
Builds were reported in stocks of RBOB, distillates, residual fuel oil, propane, and other oils. Draws were reported in stocks fuel ethanol and K-jet fuel.
Crude oil supplies in the United States decreased to 455.9 million barrels, a draw of 2.1 million barrels.
Crude oil supplies decreased in three of the five PAD Districts. PADD 1 (East Coast) stocks fell 0.3 million barrels, PADD 2 (Midwest) stocks decreased 2.1 million barrels, and PADD 3 (Gulf Coast) stocks fell 0.3 million barrels. Crude oil stocks in PADD 4 (Rockies) grew 0.1 million barrels and PADD 5 (West Coast) stocks increased 0.7 million barrels.
Cushing, Oklahoma inventories decreased to 54.5 million barrels, a draw of 1.9 million barrels.
Domestic crude oil production decreased 18,000 barrels daily to 9.117 million barrels per day.
Crude oil imports averaged 7.189 million barrels per day, a daily decrease of 0.270 million barrels.
Refineries used 93.1 per cent of capacity, an increase of 2.2 percentage points from the previous report week.
Crude oil inputs to refineries increased 403,000 barrels daily; there were 16.513 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, grew 412,000 barrels to 16.780 million barrels daily.
Total petroleum product inventories saw an increase of 10.6 million barrels. Gasoline stocks grew 2.8 million barrels; total stocks are 217.4 million barrels.
Total product demand fell 1.252 million barrels daily to 18.543 million barrels per day. Nearly 70% of this decrease in total product demand was from other oils, which experienced a demand drop of 0.874 million barrels per day.
Demand for gasoline decreased 34,000 barrels per day to 8.983 million barrels daily.
Distillate fuel oil supply increased 3.1 million barrels. Government data show this is the seventeenth consecutive weekly build in distillate inventories. Stocks are 154.0 million barrels. National demand was reported at 3.482 million barrels per day during the report week. This was a weekly decrease of 83,000 barrels daily.
Propane added 1.1 million barrels to supply. There are 97.7 million barrels in storage. Current demand is estimated at 0.975 million barrels per day, a decrease of 189,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
Net storage injection is smaller than both the five-year average and last year’s builds for the report week. The net injection reported for the week ending September 11 was 73 billion cubic feet (Bcf), up from 68 Bcf the previous week. This injection compares with the five-year average increase of 75 Bcf for the week and last year’s increase of 90 Bcf. Working gas inventories for the report week totaled 3,334 Bcf, 456 Bcf (16%) higher than last year at this time and 125 Bcf (4%) higher than the five-year (2010-14) average.
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. 37
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