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Supply, Marketing, Distribution, Transportation & Logistics News & Information
July 2017 Issue

Weekly Energy Market Situation, March 27, 2017

March 27, 2017 •

Crude Oil Stocks Resume Growth, Little Price Response

  1. Crude oil stocks reach new record, little price response
  2. Planned SPR release will add to crude oil glut
  3. Constrained OPEC production agreement ends in June
  4. Natural gas supply surplus growing

 

Al pic 2009_cropped

Sincerely,
Alan Levine, Chairman of Powerhouse
 
 
 

The Matrix

Commercial crude oil in storage in the United States continues to reach new heights. The Energy Information Administration (EIA) reported a five-million-barrel increase during the week ending March 17, despite a dramatic increase in crude oil inputs to refineries. There are now 533.1 million barrels held in commercial storage.

 

 

The data also showed a small decrease in the Strategic Petroleum Reserve (SPR). Since February 24, the SPR has reclassified 1.7 million barrels of crude oil in preparation for 2017 sales of SPR oil. In all, the government expects to sell 25 million barrels of SPR oil in the three years ending 2019. SPR expects to sell 10 million barrels in 2017. The sale has been mandated by law and comes at a time when available crude oil is already flooding markets.

 

 

The 2017 sales are expected to occur during the second quarter. Ironically, this comes at the time when OPEC-non-OPEC producers’ cuts are planned to expire. Saudi Arabia, the country shouldering the biggest part of the reductions, has expressed reluctance to continue its role as balance wheel for global supply.

Corporate capital spending is also expected to create new domestic shale oil supply. One investment bank notes that “2017 – 2019 is likely to see the largest increase in mega projects’ production in history, as the record 2011 – 2013 capital expenditure (CAPEX) commitment yields fruit.”

A failure to renew the OPEC-non-OPEC agreement, new SPR inputs and expanding U.S. crude oil production are ingredients for a renewed price decrease (assuming no significant change in consumption).

The puzzle is why this has not already happened. West Texas Intermediate (WTI) traded a tight range between $50 and $54.50 from December until early March, when spot WTI broke support. Prices rapidly fell to $47, but since then have recovered to as much as $49.62. This range has remained intact. A break of $47 brings support at $44.17—a Fibonacci 38.2% retracement of the range since bottoming at $26.05 in February 2016.

 

Supply/Demand Balances

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

Total commercial stocks of petroleum increased 1.3 million barrels during the week ending March 17, 2017.

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

Commercial crude oil supplies in the United States increased to 533.1 million barrels, a build of 5.0 million barrels.

Crude oil supplies increased in four of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks grew 0.3 million barrels, PADD 2 (Midwest) crude oil stocks expanded 3.0, PADD 4 (Rockies) crude stocks increased 0.5 million barrels and PADD 5 (West Coast) stocks grew 1.2 million barrels. PAD District 3 (Gulf Coast) crude oil stocks were unchanged from the previous report week.

Cushing, Oklahoma, inventories increased 1.5 million barrels from the previous report week to 68.0 million barrels.

Domestic crude oil production increased 20,000 barrels daily to 9.129 million barrels per day.

Crude oil imports averaged 8.307 million barrels per day, a daily increase of 902,000 barrels. Exports fell 167,000 barrels daily to 550,000 barrels per day.

Refineries used 87.4% of capacity, an increase of 2.3 percentage points from the previous report week.

Crude oil inputs to refineries increased 329,000 barrels daily. There were 15.801 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, grew 427,000 barrels daily to 16.183 million barrels daily.

Total petroleum product inventories saw a decrease of 3.7 million barrels from the previous report week.

Gasoline stocks decreased 2.8 million barrels; total stocks are 243.5 million barrels.

Demand for gasoline fell 54,000 barrels per day to 9.2 million barrels daily.

Total product demand decreased 209,000 barrels daily to 19.255 million barrels per day.

Distillate fuel oil supply fell 1.9 million barrels to 155.4 million barrels. National distillate demand was reported at 4.012 million barrels per day during the report week. This was a weekly decrease of 397,000 barrels daily.

Propane stocks fell 0.1 million barrels to 44.3 million barrels. Current demand is estimated at 1.109 million barrels per day, an increase of 220,000 barrels daily from the previous report week.

 

 

Natural Gas

According to the EIA:

Net withdrawals [of natural gas] from storage totaled 150 Bcf, compared with the five-year (2012 – 2016) average net withdrawal of 21 Bcf and last year’s net injections of 13 Bcf during the same week. Cold temperatures and wintry conditions throughout the week for most of the Lower 48 states east of the Rockies contributed to increased heating demand for natural gas compared with normal levels, leading to larger withdrawals from storage. Working gas stocks totaled 2,092 Bcf, which is 266 Bcf more than the five-year average and 399 Bcf less than last year at this time.

If working gas stock changes follow the five-year average for the remainder of the heating season, they will total 2,052 Bcf on March 31. So far in 2017, net withdrawals are 19% below the five-year average. Working gas levels topped this threshold at the end of the heating season only two other times, in 2012 and 2016, when working gas totaled 2,473 Bcf and 2,470 Bcf, respectively. Both of those heating seasons were also characterized by warmer-than-normal temperatures and relatively light heating demand for natural gas.

Natural gas withdrawals matched traders’ expectations and drew little reaction. At the end of the report release day, spot futures ranged 7.7 cents. This was well in line with recent activity that has held prices in a 24-cent range with little indication of a new direction. Some observers point to a growing surplus as potentially bearish.

 

 

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.

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