Fundamental Friday: 18 March 2016

Crude oil: For the week ending March 11th, U.S. production shrunk by 10,000 b/d week over week. After a slight gain the week before, a 0.1% change showed the continuing pressure of low oil prices on domestic producers. Over the past month, production power of 67,000 b/d has gone dormant reflecting the current trend of supply tightening. Daily output level now sits at 9,068,000 b/d. The last time wells were pumping this much, the weekly WTI spot price had fallen to $78.42 for the week ending November 7th, 2014.  Keep an eye out for the 9 million b/d mark which might be identified as a signal of building momentum.

Stocks of crude oil in the United States grew by about 1.3 million barrels last week with companies still looking to store crude while waiting for higher prices. A jump of 1.6%, or about 20 million barrels, for the past month shows the constant pressure on storage and refinery capacity. With every weekly increase, total stocks of crude oil (excluding SPR) sets a new all-time record, weighing heavily on WTI prices. The newest weekly estimate, an all-time record, currently sits at 2.042 billion barrels.

Production drops currently support the positive trend in WTI spot price this week (gains of 3.50%), but crude oil stock date keeps downside risk around. Today, contracts traded as high as $41 then settled at $39.35.

Natural gas: Baker Hughes reported that the amount of rigs producing natural gas dropped by 5 to 89. from last week in the United States. In Canada, natural gas rigs fell by 13 to 57 total. That count is 48% lower than the 110 rigs that were running a year ago. Despite both countries showing a decrease in rig utilization, production has remained stable "indicating that drilling has become more effective," per the Energy Information Agency. They reported a 5.4% growth in production last year and projected a flatter 0.9% this year. The oil and gas split in the rig count in North America widened to 81.3% crude oil and 18.7% natural gas. Next week will mark two months since natural gas rigs accounted for 20% of the total. Diversified energy companies appear to be leaning towards a bet on a crude oil rebound.

Like crude oil, stocks of natural gas continue to rise at frustrating rates. For the week of March 11th, gas underground storage in the United States decreases by just 1 billion cubic feet to 2,478 billion cubic feet. This year's withdrawals are significantly less than the 81 billion cubic feet used last year. Total storage across the country remains saturated with a 67.4% increase since March 11th, 2015. The oversupply is mostly blamed on an HDD deviation of -31.2% from the normal U.S. winter. 

Lower consumption and a warmer winter have kept natural gas spot prices low through the winter, but a recent recovery has lifted it to $1.893, a 5-day jump of 4.76%.

Gasoline: Stocks of the blending components in motor gasoline fell by just over 2 million barrels in the past week with the RBOB blend stock dropping 309 thousand barrels alone. Finished motor gasoline grew by almost 1.3 million barrels in the same period. As energy companies enter the refinery maintenance season, the proportion of component gasoline stocks to finished gasoline stocks will get higher. This will magnify the already oversupplied markets where component stocks in the second week of March 2016 are 8% higher than the same time 2015 and 21% higher than 2014. Similarly, an already reduced finished gasoline stock that is 7% less than the 2015 total and 29% less than the 2014 total will face more downward pressure.

Regular gasoline prices across the country have increased slightly in response to the seasonality trend. Week over week, the average U.S. price per gallon grew 6.5% to $1.961. Diesel prices grew as well but at a slower 3.9% to $2.099 a gallon. RBOB contracts fell -0.8% to $1.43 this week, but the one month trend remains at a bullish 18.7% following its complementary, crude oil.

  • Supply, gas price, and production data from EIA
  • Rig count data from Baker Hughes
  • Spot price data from WSJ


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