Fundamental Friday: 20 May 2016

Crude oil: Domestic production continues down its bullish path reaching another milestone this week. Output fell 11,000 b/d to 8.791 million b/d as producers continue to limit their operations. After crossing the 8.8 million b/d level, the pace of decreases might slow as higher prices give the incentive to keep more wells online. Crude oil stockpiles failed to confirm a reversal that occurred last week. After falling the week before, stocks grew by 1.4 million barrels to 1.236 billion barrels total. Stabilization could occur somewhere around the 1.24 billion level if refineries can keep up with extraction rates.

So far, the domestic downstream operations are gearing up for summer demand. Refinery inputs increased by about 200,000 b/d to 16.371 million b/d this week. A streak of four straight weeks of refinery input gains should be bullish for the crude oil market while bearish on gas prices. Percent operable utilization increased by 1.4 percent to 90.5 percent total. With utilization above 90 percent, traders should prepare for maximum downstream capacity during the summer. Look for these trends to become less volatile and more directed in the upside in the future.

WTI and Brent crude prices inch towards the $50 level. The WTI spot price grows just over 3.5 percent this week to $47.86 a barrel, and Brent adds 2.3 percent to reach $49.25 a barrel.

Natural gas: Natural gas fundamentals continue to be bearish on the supply side countered by rising bullishness on the demand side. Underground stocks grew at a faster pace this week up 73 bcf to a total of 2,754 bcf. A new metric from the EIA weekly report estimates that daily production grew by 0.1 bcf/d to 80.2 bcf/d while demand grew faster, a jump of 1.6 bcf/d to 65.9 bcf/d. The start of the cooling season should continue the trend of steeper demand growth. Baker Hughes reported two new offline rigs this week with a total now at 85, the lowest ever recorded.

A saturated domestic natural gas market could see some relief with the first liquefied natural gas export facility coming online in the beginning of May. The Sabine Pass terminal has already exported almost 32 bcf to countries around the world. With the construction of five more LNG export facilities ongoing, the United States has the potential to increase exports of LNG to nations around the world above the current 9.2 bcf/d.

The Henry Hub spot price continues to be volatile with losses of 2 percent this week. On Friday, trading is flat closing around $2.203 at the end of the week.

Gasoline: Motor gasoline fundamentals remain volatile on the downstream end with minor fluctuations week after week. Finished gasoline stocks dropped by 680,000 barrels to 24.305 million barrels this week. Component stocks fell by about 1.8 million barrels to 213.764 million barrels total. Both stockpiles reached six-week lows as refinery capacity and demand reach near term highs. Finished gasoline fell about 50,000 b/d to 9.997 million b/d, just below the highs of last week about 10 million b/d. Product supplied also remains at high levels with a boost of over 800,000 b/d to 20.775 million b/d. High supplied levels are most likely keeping finished stocks at bay which will surely put pressure on prices at the pump.

Regular and diesel gas prices moved slightly higher this week as crude oil prices continue to recover. Regular U.S. gas prices jumped $0.022 to $2.242 per gallon. From a year ago, prices are down over $0.50 meaning summer demand could be more robust with more consumption possible. Diesel prices are up $0.026 to $2.297 per gallon. With a trend similar to regular prices, diesel consumption is expected to be higher in the summer as well.


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