Bearish Price Pattern Persists
- WTI futures lose a quarter of value since June
- Rig counts moving up
- Oil demand expectations cut by EIA
- Natural gas injection falls short of expectations
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
A bearish price pattern has dominated oil markets since early June. The WTI crude oil high of June 8th is far behind us. A loss of twenty per cent of WTI’s value has occurred with no sign of a bottom forming.
And why would it? Crude oil production in the United States may have stabilized, rising marginally to 8.515 million barrels daily. Imports rose by more than 300,000 barrels per day. The improvement in domestic output reflects a shift in the fortunes of drillers.
Baker Hughes reported the fourth consecutive week of increasing rig counts. Forty-four crude rigs have been put to work in July, leading some analysts to conclude that the “North American market has turned.” There is one cautionary note to be sounded. Decisions to expand exploration were likely made when prices were rallying. With WTI now challenging forty dollars, further expansion of exploration and production remains uncertain.
The market may not show signs of bottoming for other reasons. The Energy Information Administration has lowered its forecast for domestic oil demand growth. EIA now believes that demand for oil in 2016 will grow 160,000 barrels per day. This is a reduction of more than a quarter in the government’s outlook.
Actually, the cut appears to be a shift in demand to 2017. EIA has doubled its forecast of U.S. growth for 2017 to 120,000 barrels daily. Its earlier estimate included growth of 60,000 barrels per day. EIA expects 2017 demand to reach 19.68 million barrels daily.
Lower crude oil prices have translated into expanded gasoline production and near-record gasoline inventory. The most recent weekly data show stocks at 241.5 million barrels. Gasoline supplies are such that some refiners have been producing winter grade gasoline for use later this year. This may be a short-term response to large inventories, but inevitably sets up the prospect of extending the glut.
Supply/Demand Balances
Supply/demand data in the United States for the week ending July 22, 2016 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 2.7 million net barrels during the week ending July 22, 2016.
Builds were reported in stocks of gasoline, propane, and other oils. Draws were reported in stocks of fuel ethanol, K-jet fuel, distillates, and residual fuel oil.
Crude oil supplies in the United States increased to 521.1 million barrels, a build of 1.7 million barrels.
Crude oil supplies increased in three of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks experienced a build of 300,000 barrels, PADD 2 (Midwest) stocks increased 700,000 barrels, and PADD 3 (Gulf Coast) stocks rose 1.5 million barrels. PAD District 4 (Rockies) crude oil stocks experienced a decline of 0.2 million barrels and PADD 5 (West Coast) stocks fell 0.6 million barrels.
Cushing, Oklahoma inventories increased 1.1 million barrels to 65.2 million barrels.
Domestic crude oil production increased 21,000 barrels daily to 8.515 million barrels per day.
Crude oil imports averaged 8.437 million barrels per day, a daily increase of 303,000 barrels.
Refineries used 92.4 per cent of capacity, a decrease of 0.8 percentage points from the previous report week.
Crude oil inputs to refineries decreased 277,000 barrels daily; there were 16.586 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased 147,000 barrels daily to 16.924 million barrels daily.
Total petroleum product inventories saw an increase of 1.0 million barrels from the previous report week.
Gasoline stocks increased 0.5 million barrels; total stocks are 241.5 million barrels.
Demand for gasoline increased 11,000 barrels per day to 9.797 million barrels daily.
Total product demand increased 149,000 barrels daily to 20.802 million barrels per day.
Distillate fuel oil supply decreased 0.8 million barrels; total stocks are 152.0 million barrels. National distillate demand was reported at 3.856 million barrels per day during the report week. This was a weekly decrease of 63,000 barrels daily.
Propane stocks increased 2.2 million barrels to 89.6 million barrels. Current demand is estimated at 878,000 barrels per day, a decrease of 267,000 barrels daily from the previous report week.
Natural Gas
According to the Energy Information Administration:
Net injections into storage totaled 17 Bcf, compared with the five-year (2011-15) average net injection of 52 Bcf and last year’s net injections of 52 Bcf during the same week. This is the smallest summertime (June–August) weekly net injection since August 2012. Working gas stocks total 3,294 Bcf, 524 Bcf above the five-year average and 436 Bcf above last year at this time.
On release of the injection number, prices rallied sharply. Additions to storage were far below expectations which ranged around 26 Bcf. The shortfall could reflect hot weather demand for cooling. CDDs since April 1st have reached 656 for the Lower 48 states. Normally 556 CDDs are generated over this period.
Futures prices rallied, ending the trading day at $2.873 basis September. This level had not been seen since July 5th. Nearby resistance can be found at $2.998. Support is at $2.65.
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
or call: 202 333-5380
Copyright © 2016 Powerhouse, All rights reserved
The post Weekly Energy Market Situation, Aug. 1, 2016 appeared first on Fuel Marketer News.