Bears Take Control
- OPEC-non-OPEC deal may be unraveling
- Crude oil tanker movements reach a record
- Gasoline supply up; gasoline demand down
- Natural gas storage lags last year, well ahead of five-year average
Sincerely, Alan Levine, Chairman of Powerhouse
Declining oil prices in recent days suggest that the effectiveness of the OPEC-non-OPEC production cut agreement may be unraveling. Skepticism around this agreement is getting an important boost. Information on global oil shipments shows more activity than might be justified if production has actually fallen, unless supplies to the market were to come from sources other than new production.
Data on ocean crude oil tanker movements reportedly hit 47.8 million barrels daily in April. This is a record. It is up 5.8% since December 2016 (before the production cuts were initiated). The sources of this oil are higher output and exports from producers that are not part of the agreement, including the United States. U.S. crude oil output continues to rebound, reaching 9.25 million barrels daily in the Energy Information Administration’s (EIA’s) most recent report. Additionally, the U.S. is rapidly becoming an important exporter of oil to international markets. In the four weeks ending April 14, the United States exported 710,000 barrels daily. The comparable period in 2016 saw exports of only 351,000 barrels per day.
Another source of crude oil in addition to new production is storage. Several countries, including OPEC members, have been holding stocks produced but not yet sold into global commerce. Saudi Arabia, principal architect of production limits, concedes that traders have been selling out of tanker storage. This allows the Kingdom to comply with the OPEC-non-OPEC production agreement and sell more oil anyway.
Gasoline has turned especially bearish in recent days. Fundamental data on both supply and demand are contributing to weakness in the market price. The EIA’s Petroleum Balance Sheet for the week ending April 14 reported continuing gains in refinery use. Nationally, facilities are now operating at 92.9% of capacity. This opens the way for the refining of more gasoline as spring advances. In the four weeks ending April 14, refinery production of finished motor gasoline reached 9.8 million barrels daily, 228,000 barrels per day more than last year at this time.
Gasoline demand has been softening as well. EIA estimates gasoline use at 8.847 million barrels for the most recent four week period. This is 3.7% lower than last year at this time.
Growth in gasoline stocks, growth in refiner output, declining demand and gains in imports point toward softer gasoline prices in the weeks ahead.
Supply/demand data in the United States for the week ending April 14, 2017, were released by the EIA.
Total commercial stocks of petroleum decreased 1.7 million barrels during the week ending April 14, 2017.
Draws were reported in stocks of distillates, residual fuel oil and propane. There were builds in stocks of gasoline, fuel ethanol, K-jet fuel and other oils.
Commercial crude oil supplies in the United States decreased to 532.3 million barrels, a draw of 1.0 million barrels.
Crude oil supplies decreased in three of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks increased 0.7 million barrels, PADD 2 (Midwest) stocks had a build of 1.9 million barrels, PADD 3 (Gulf Coast) fell 3.0 million barrels, PADD 4 (Rockies) crude oil stocks declined 0.1 million barrels and PADD 5 (West Coast) stocks decreased 0.5 million barrels.
Cushing, Oklahoma, inventories decreased 0.8 million barrels from the previous report week to 68.6 million barrels.
Domestic crude oil production increased 17,000 barrels daily to 9.252 million barrels per day.
Crude oil imports averaged 7.810 million barrels per day, a daily decrease of 68,000 barrels. Exports fell 124,000 barrels daily to 565,000 million barrels per day.
Refineries used 92.9% of capacity, an increase of 1.9 percentage points from the previous report week.
Crude oil inputs to refineries increased 241,000 barrels daily; there were 16.938 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, grew 351,000 barrels daily to 17.296 million barrels daily.
Total petroleum product inventories saw a decrease of 0.7 million barrels from the previous report week.
Gasoline stocks increased 1.5 million barrels; total stocks are 237.7 million barrels.
Demand for gasoline fell 52,000 barrels per day to 9.223 million barrels daily.
Total product demand decreased 439,000 barrels daily to 19.440 million barrels per day.
Distillate fuel oil supply fell 2.0 million barrels to 148.3 million barrels. National distillate demand was reported at 4.177 million barrels per day during the report week. This was a weekly decrease of 457,000 barrels daily.
Propane stocks fell 0.7 million barrels to 39.6 million barrels. Current demand is estimated at 926,000 barrels per day, a decrease of 231,000 barrels daily from the previous report week.
According to the EIA:
Warmer temperatures resulted in higher-than-average net injections into working gas storage. Net injections into storage totaled 54 Bcf, compared with the five-year (2012 – 2016) average net injection of 35 Bcf and last year’s net injections of 6 Bcf during the same week. Working gas stocks total 2,115 Bcf, which is 282 Bcf more than the five-year average and 368 Bcf less than last year at this time.
Working gas levels are 15% lower than last year’s record levels, but well ahead of the five-year average. Working gas levels are 368 Bcf, or 15%, lower than last year’s levels at this time.
Bearish sentiment in the natural gas sector was given a boost by analysis of activity in Appalachia. Two regional pipelines, Rover and Nexus, account for 4.75 Bcf per day take-away capacity. If both lines start service as scheduled, current tight supply would quickly become surplus according to this study.
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.
Powerhouse is a registered affiliate of Coquest, Inc.
Was this helpful? We’d like your feedback.
Please respond to Alan@PowerhouseTL.com.
Copyright © 2017 Powerhouse, All rights reserved.