EIA Long Term Projections Dampen Inventory Effects

Posted by Kelly Burke on Oct 12, 2017 2:57:45 PM

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WTI was in the red today ahead of the EIA inventory report.

API projections were that Crude would show builds of 3.1mmb - of note on this is API was an outlier of sorts, Platts forecasted draws of 400K barrels ahead of the official reporting.

Internationally, IEA Forecasts for global oil demand growth remained at 1.6m bpd, so flat demand growth amid the continued oversupply that doesnt seem to have much of an end in sight, long term picture wise. 

Anyhow, the official EIA report showed a draw down in Crude of 2.8mmb for the week ending 10/6. Gasoline was up 2.5mmb and distillates were down 1.5mmb. Gasoline had been projected to be down 1.4mmb, so the drop off we saw on gasoline today makes sense given the actuals. 

Side note - the EIA Report showed builds in Nat Gas of 87 billion cubic feet, right in line with Platts projections. The market was essentially unchanged on the builds, presumably because it makes sense there would be a temporary bump in inventories given temperatures havent dropped off, so demand should be low.Usually in New England we are well into the battle to keep the heat off til November 1 by now - this year not so much. I still have my air conditioner in the window.  

Gulf Refineries are back online and at capacity after temporary shut downs for Hurricane Nate, which probably is a factor in pushing pricing down as well in the face of flat demand.

In addition to the U.S. being back fully functional, EIA forecasts put U.S. domestic crude production at 9.9mmb per day for 2018 which would be the highest on average in U.S. history. Continued domestic production is seen as being a factor that will offset moves by OPEC or other nations to push a pricing rally. Theoretically, a rally cannot be sustained long term globally if the U.S. keeps production levels rising. We'll have to wait and see on that. 

The official numbers we closed out at this afternoon were: ULSD 1.7655 (-.0206), Gas 1.5832 (-.0260) and Crude landed right around the benchmark at $50.60

Thats all for today!

 

 

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Topics: natural gas, EIA, EIA Inventories, $50 benchmark

Two to Contango - Weather & Supply Crush WTI & Nat Gas

Posted by Kelly Burke on Oct 26, 2015 4:49:36 PM

The definition of Contango is displayed

Another day, another price drop.

Both Brent and WTI Crude have shed about 10% of their value over the past two weeks, and those losses continued today.

Today, front month (December) WTI dropped from Friday’s $44.60 to $43.98, while front month (November) ULSD dropped from 1.4544 to 1.4259 (-.0285) and RBOB dropped (-.0157) from 1.3036 to 1.2879.

WTI Crude is continuing to show an ever widening contango, with front month discounts at a 5 month high and still going. 

What’s behind it? Supply, supply, and more supply, with an added kick of above average temperatures for the season and a forecasted lighter winter.

Despite the fact that US rig counts have dropped to their lowest level since 2010, supply just simply has not slowed down enough domestically - US Crude is up 5% in just the past 4 weeks, to the highest level we’ve seen this time of year since the 1930s. And as we’ve covered extensively, OPEC output remains at sustained high levels abroad.

As an aside - we talk a lot about the supply glut in reference to Crude, but it’s becoming a serious issue on refined products and Natural Gas as well. There is fear in Europe about refined products, specifically diesel, hitting “tank tops” – in other words the supply hitting or exceeding maximum storage capacity.

Although it’s not likely tank tops will actually be hit, the fact that the concern exists speaks to the level of over supply we are looking at. (According to Reuters, aforementioned stockpiles of refined products are resulting in diesel and jetfuel cargoes taking longer routes and backing up outside of European ports.)

Natural Gas has been plummeting as well, and today NYMEX Nat Gas saw its largest single day drop since February of 2014. It dropped almost 10% on the winter forecast and supply gluts, the same concerns that have been pummeling Crude. Natural Gas, like WTI, is in contango at present, and there is no real indication it will reverse course any time soon.

To add some gasoline to the fire (pun very much intended) – Goldman Sachs today warned that it expected downward pressure on oil and distillates through Spring 2016 based on supply and weather forecasts, while other analysts proclaimed Natural Gas would be facing the same issue, with concern about capacity max outs and no foreseeable reason it should have the price spike we almost always see as we round into the winter months.

Who wants to bet on how those announcements impact trading tomorrow?

 

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Topics: natural gas, wti, oil glut, contango

EIA Projections for 2015 & 2016 Released Today

Posted by Kelly Burke on Jun 9, 2015 3:05:31 PM

Line charts depicting the stock market scattered on a table

The EIA released its Short Term Energy Outlook today with its projections for both Crude prices and US Crude Oil production through 2016. It also projects where we will be on retail gasoline, natural gas storage, and electricity for 2015 & 2016.

In a nutshell, the outlook is as follows:

  • Brent is expected to average $61/bbl for 2015 and $67/bbl in 2016. The prior projected price for Brent in 2016 was $70/bbl
  • WTI is also forecast to drop about $3 dollars from the prior projection level for 2016. It forecasts WTI for 2015 to be up about a dollar higher than prior projections (up to $55.35/bbl)
  • Crude production is expected to dwindle slightly through early 2016, but the total projected volumes were revised up slightly - the new projected numbers are 9.4mmbpd in 2015 and 9.3mmbpd in 2016
  • Natural gas injections are expected to continue to climbing over their historic highs through 2016.
  • Retail gasoline is expected to decline slightly through the end of the year, backing off its current yearly high. 
  • Additionally, for consumers, the EIA is projecting an almost 5% increase in electricity bills for this summer season.

Other mentions of note, Brent saw its highest monthly average of 2015 in May, a $5 jump over its April average price. Retail gasoline also hit its high for the year in May. All of this despite inventory builds and OPEC production levels remaining at highs. 

The EIA Inventory Report publishes tommorow morning, we'll have to see how that impacts the NYMEX. Hopefully its an easier day than today, where we saw ULSD jump up .0631 to settle at 1.9179, and RBOB jumped .0696 to 2.0771 at the close. 

Stay tuned!

 

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Topics: natural gas, EIA, Brent Crude, WTI Crude, retail gasoline, US Crude Production

Inventories and Saudi Market Moves Continue to Push Oil Prices Down

Posted by Kelly Burke on Jan 28, 2015 3:13:24 PM

Line charts depicting the stock market scattered on a table

Oil continued downward today on the back of the EIA inventory report for last week that indicated Crude stockpiles were up 9mmbl to a record high of about 407mmbbls. At the close, Crude dropped below $45/bbl, -1.78 to 44.45. ULSD and RBOB closed lower as well, ULSD settling down .0310 to 1.6318, and RBOB settled down .0051 to 1.345.

In addition to the inventory report, as we mentioned, the new Saudi leader has indicated the largest OPEC producer will continue on its track to hit production goals set. Both of these factors mean traders are still concerned with longterm over supply, which is continuing to drive down prices.

The Saudi stock market shot up today as well on rumors of relaxing restrictions on foreigners trading that market. This ties back to the oil oversupply, in that most are crediting the Saudi's potential move of opening the market up as a way to raise revenue and stimulate the economy in the non-energy sectors, which indicates further that the current oversupply will be a long term situation.

In other news, the House today passed a bill to expedite the process for permitting LNG exports. With the increase in US Nat Gas production (the US is currently the worlds top producer), the thought is exporting would not only be economically beneficial for the US but exporting to Europe could reduce the essential monopoly Russia has on natural gas supply in those nations. 

At the same time that passed the House, a Keystone bill continued to languish in the Senate when the attempt to pass a procedural motion to push the vote failed Monday. One of the ammendments to the current bill is a proposal to eliminate the ethanol mandate portion of the RFS - this will be an important one to watch, certainly.

Stay tuned!

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Topics: natural gas, CRUDE, Saudi Oil Minister, EIA Inventories

"Polar Vortex" saw Nat Gas hit Record Highs

Posted by Mark Pszeniczny on Jan 31, 2014 3:41:00 PM

Natural gas hit $5/mmBTU on the NYMEX for the first time in over 3 years last week, over concern about supply and a increase in demand due to to continuing frigid temperatures throughout the country. As of Jan 30, prices have backed off some but the underlying supply issues behind the spike may still play a relevant role in Nat Gas volatility going forward. 

The spike involved inventory reports showing Nat Gas storage 13% below the 5 year average which raised some supply concerns. Additionally, production can be affected by extreme cold by what are referred to as "freeze offs" - pipes become constricted from frozen liquid, diminishing their output capacity. Analysts speculated that if the cold extends well into February, we may not see the anticipated price corrections as continually high demand will push prices up further. Again, prices have backed off a little bit, but with another cold snap we could be having deja vu on the issue.

Natural Gas has been touted as a cheaper, more efficient way to heat than using heating oil (the EIA estimates 50% of Americans use Nat Gas as their primary heating source, compared to roughly 6% on heating oil, the majority of which are in the North East). A major selling point when heat prices skyrocketed was that Natural Gas prices were less volatile - but as Natural Gas conversions to homes and buildings happen left and right, and Nat Gas spikes on the NYMEX is that really true anymore?

Looking at prices for Nat Gas versus Heat isn't apples to apples given the way each is measured, but if you convert the cost for Natural Gas versus Heating Oil per therm you can get an idea of the comparison.  

You get about 35% more BTUs out of oil, so basically if Nat Gas ends up landing at a spot where its not at least 40% cheaper than oil, the price advantage breaks down. Additionally, thats product cost alone, not factoring utility fees and the like. 

Currently Natural Gas still strongly holds the price advantage, but without serious pipeline and transport fixes, supply crunches will likely continue - particularly in the Northeast where spot prices are incredibly higher than the national average. It will be interesting to see how prices settle out (or not) over the coming months.

 

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Topics: Commodities, natural gas, NYMEX

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