Fundamental Friday: 27 May 2016

Crude oil: Crude oil fundamentals improved this week as prices threaten to jump above $50 for the first time since last year. Domestic output sped up its freefall as producers cut 24,000 b/d of production last week to end at a total of 8.767 million b/d. Since the beginning of the year, total crude oil production has fallen over 450,000 b/d. almost 5 percent in just under 6 months. Stockpiles fell as well marking the second draw on inventories in the past three weeks. After falling about 4.23 million barrels last week, total crude oil inventories ended at 1.232 billion barrels. Further confirmation is needed to call these declines signs of a reversal in trend.

Refinery fundamentals stabilized last week after peaking at a local maximum the week before. Refinery inputs dropped just under 100,000 b/d to 16.279 million b/d total. So far May refinery inputs average out to 16.276 million b/d which is higher than any April input values. Utilization capacity came in at 89.7 after a drop of 0.8 percent last week. The utilization estimate for the week of April 29th matches this week's value but its input was over 400,000 b/d lower. This suggests refinery are speeding up output expecting heavier summer demand to kick in soon.

Both spot prices continue to creep closer to the $50 a barrel mark which could be a very bullish milestone for investors. A five-day gain of 2.27 percent left WTI at $49.51 a barrel. Brent crude just barely closed above at $50.08 a barrel on Friday.

Natural gas: Natural gas stocks continue to send mixed signals to futures traders. Underground storage grew by 71 bcf to end at 2,825 bcf by the end of the week. While the gains remain largely bearish, the gains are occurring at a slower pace than the 5-year average which leaves a bullish twist on fundamentals. Operating rigs increased by 2 to 87 after briefly dropping to a local minimum. More demand and higher prices should cause this to increase in the coming weeks. Supply change from last week fell 0.6 bcf/d to 79.6 bcf, and demand change dropped 2.2 bcf/d to 63.7 bcf/d.

In the EIA weekly natural gas update, it reported on the addition of LNG powered supply vessels which should increase demand for the energy commodity. As it's prices has fallen below other petroleum-products, LNG's use has a fuel has increased significantly.

Volatility continues to plague Henry Hub spot price traders. A loss of 1.81 percent left natural gas at $2.167 despite gains of 0.74 percent on Friday.

Gasoline: Gasoline prices continue to rise as supply and demand fundamentals get tighter. Finished gasoline stocks flattened to a gain of just 34,000 barrels to 24.339 million total. Component gasoline stocks jumped over 2 million to 215.772 million last week. Refineries slowing down this week led to the growth in component stock but should be temporary. Finished gasoline production fell about 130,000 b/d to 9.866 million b/d. Product supply also decreased to 20.438 million b/d, a decline of 340,000 b/d.

After a mixed week last week, gas prices posted a stronger move last week. Average regular gas prices jumped $0.058 to $2.30 per gallon. Diesel prices grew by $0.060 to $2.357 per gallon as well. Prices haven't been this high since late October of 2015 before the price of oil crashed in late 2015 and early 2016.


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