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March 2017 Issue

Weekly Energy Market Situation (February 27, 2017)

February 27, 2017 •

U.S. Oil Stocks Show First 2017 Draw

  1. Total inventory fell 11 million barrels
  2. Market not sure OPEC cuts will be enough to cut glut
  3. EIA: Shale oil to reach 6 million barrels per day by 2026
  4. Propane stocks draw again
  5. Natural gas storage could end heating season above 1.9 Tcf.

 

Al pic 2009_cropped

Sincerely,
Alan Levine, Chairman of Powerhouse
 
 

The Matrix

Increasing petroleum stocks in the United States screeched to a halt in the most recent Energy Information Administration (EIA) supply/demand balance for the week ending February 17, 2017.

Total stocks of crude oil and petroleum products fell 11 million barrels, spread throughout the products. Distillate fuel oil stocks lost 4.9 million barrels and gasoline stocks fell 2.6 million barrels. These declines were notable because both products have been accumulating this year, notwithstanding reductions in refinery utilization. Analysts point to depressed demand for both products as a principal cause. Gasoline use in particular suffered because of weather related demand loss in January and February.

 

 

Notwithstanding apparently dramatic compliance by the OPEC-non-OPEC exporters, the markets may be skeptical that global inventories will be lessened by mid-2017. U.S. drill rig counts have supported a significant recovery in domestic production. In the most recent weekly report, domestic crude oil production exceeded 9 million barrels daily. This level was last seen in April 2016. EIA projects crude oil output reaching 9.3 million barrels per day by the end of 2017.

EIA’s Annual Energy Outlook 2017 estimates in its Reference case that production from shale (“tight”) is likely to grow to more than 6 million barrels daily in the next decade. It will account for most of U.S. production. Subsequently, production from tight formations is expected to remain more or less constant through 2040. This reflects movement into less productive plays and declining well productivity. Ironically, technological improvements were the drivers for the growth in tight oil since 2010. These included reduced drilling costs and greater drilling efficiencies. By 2015, shale oil accounted for more than half of domestic production.

EIA notes, “In the Reference case, tight oil production from the Eagle Ford and Bakken—two of the largest tight oil regions in the country—begins to decline after 2020 and 2030, respectively. Production in the Permian Basin (which includes the Spraberry, Avalon/Bone Spring and Wolfcamp plays) remains relatively high through 2040. Compared with the Eagle Ford and Bakken, the Permian Basin has more geographic extent and contains multiple stacked plays, providing drillers with more opportunities for continued long-term development.”

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending February 17, 2017, were released by the EIA.

Total commercial stocks of petroleum decreased 11.0 million barrels during the week ending February 17, 2017.

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

Commercial crude oil supplies in the United States grew to 518.7 million barrels, an increase of 0.6 million barrels.

Crude oil supplies increased in two of the five PAD Districts. PADD 3 (Gulf Coast) stocks grew 0.9 million barrels and PADD 4 (Rockies) expanded 0.2 million barrels. PAD District 1 (East Coast) crude oil stocks fell 0.3 million barrels and PADD 5 (West Coast) stocks decreased 0.4 million barrels. PADD 2 (Midwest) crude oil stocks were unchanged from the previous report week.

Cushing, Oklahoma, inventories decreased 1.6 million barrels from the previous report week to 63.0 million barrels.

Domestic crude oil production increased 24,000 barrels daily to 9.001 million barrels per day.

Crude oil imports averaged 7.286 million barrels per day, a daily decrease of 1.205 barrels. Exports expanded 185,000 barrels daily to 1.211 million barrels per day.

Refineries used 84.3% of capacity, a decrease of 1.1 percentage points from the previous report week.

 

 

Crude oil inputs to refineries decreased 187,000 barrels daily. There were 15.271 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 200,000 barrels daily to 15.570 million barrels daily.

Total petroleum product inventories saw a decrease of 11.6 million barrels from the previous report week.

Gasoline stocks decreased 2.6 million barrels; total stocks are 256.4 million barrels.

Demand for gasoline rose 231,000 barrels per day to 8.663 million barrels daily.

Total product demand increased 1.697 million barrels daily to 20.360 million barrels per day.

Distillate fuel oil supply fell 4.9 million barrels to 165.1 million barrels. National distillate demand was reported at 4.292 million barrels per day during the report week. This was a weekly increase of 439,000 barrels daily.

Propane stocks fell 3.3 million barrels to 49.8 million barrels. Current demand is estimated at 1.218 million barrels per day, an increase of 54,000 barrels daily from the previous report week.

 

Natural Gas

According to the EIA:

Net withdrawals from storage totaled 89 Bcf, compared with the five-year (2012 – 2016) average net withdrawal of 158 Bcf and last year’s net withdrawals of 131 Bcf during the same week. Warmer temperatures throughout the week for most of the Lower 48 states contributed to decreased heating demand for natural gas and lower withdrawals from storage. Working gas stocks total 2,356 Bcf, which is 156 Bcf more than the five-year average and 261 Bcf less than last year at this time.

Working gas stocks remain on pace to end the 2016 – 2017 heating season above 1,900 Bcf. If working gas stock changes follow the five-year average for the remainder of the heating season, they will total 1,944 Bcf on March 31. So far in 2017, net withdrawals are 17% below the five-average.

Following this slower-than-normal pace, working gas stocks will total 2,101 Bcf by the end of the heating season, which would mark the third time since 2011 that working gas stocks ended the heating season above 1,900 Bcf. The only other times working gas levels topped this threshold at the end of the heating season were in 2012 and 2016, when working gas totaled 2,473 Bcf and 2,470 Bcf, respectively. Both of these heating seasons were characterized by warmer-than-normal temperatures and relatively light heating demand for natural gas.

 

 

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Powerhouse is a registered affiliate of Coquest, Inc.

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