Fundamental Friday: 17 June 2016

Crude oil: Crude oil fundamentals continue to support a bullish recovery in spot prices. After growing slightly last week, total production fell once again losing 29,000 b/d to land at 8.716 million b/d total. While rig data showed an increase in drilling operations, extraction rates continue to fall with the exception of last week's peculiar gain. Crude oil stocks added onto its losing streak dropping about 900,000 barrels to 1.226 billion barrels total. The draw on crude inventories marks the 4th straight decline as the accelerated refinery season suggests a bullish trend in stockpiles could speed up as well.

Refinery inputs fell slightly last week. Down about 100,000 b/d, refinery usage of crude oil totaled 16.317 million b/d. While this week appears to be a drawback, the overall trend should continue upward throughout the summer. Rig utilization dropped by 0.7 percent to land just above 90 for the week. Refinery statistics for the summer of 2016 are well above the trends in the last five years. There should be no concern that downstream fundamentals will undermine a recovery in WTI and Brent futures markets.

After approaching the $50 last week, crude oil moved with volatility through this past week losing about 1.65 percent in the market for WTI contracts. Brent crude reflected a similar trend of volatility with losses of 2.29 percent over the past five days.

Natural gas: A warm summer continues to set up natural gas fundamentals to return to levels seen during the same time last year. Now down to just 26 percent above the 2015 reading, underground stockpiles grew 69 bcf to 3041 bcf last week. Rig utilization is slowing increasing from its bottom in late May. U.S. firms added 1 rig last week to end at a total of 86. Supply changes continue to be bearish, growing 0.7 bcf/d to 79.9 bcf/d, but demand counters with a stronger bullish growth of 1.3 bcf/d to 70.2 bcf/d.

The EIA's Natural Gas Weekly Update reported on an increase in global LNG imports. Over the course of 2015, the increase of floating storage and regasification units caused exports to grow 46 percent in 2015. The news is supplemented with the report that Pakistan hopes to, "build infrastructure for a second floating storage and regasification unit (FSRU) to import liquefied natural gas (LNG)." This method, being implemented around the world as one of the most "flexible, cost-effective" methods of processing LNG, should signal higher prices for LNG and natural gas in the future.

The natural gas Henry Hub spot price continued to show bullish signs of recovery this week growing 1.92 percent over the past five days. In the past three months, traders have pushed this energy commodity over 20 percent higher as fundamentals begin to improve after bearish developments in the winter.

Gasoline: Gasoline fundamentals see a slight shrink in supply with a pick in demand becoming evident. Finished gasoline stocks fell about 1.5 million barrels to 23.569 million barrels total. Component gasoline stocks fell just over 1 million barrels to 213.435 million barrels as well. Increases in refinery output and demand having an effect on the supply shrinking from less supply. Finished gasoline production dropped by about 400,000 b/d to 9.707 million b/d. That product supply is the lowest over the past 6 weeks. On the other hand, product supplied jumped by over 1 million b/d to 20.840 million b/d posting its highest recording in the same 6 weeks.

Supply and demand differences continue to shrink going into the summer forcing prices to go up. Average U.S. regular gas prices jumped $0.018 to $2.399 per gallon. Average U.S. diesel prices jumped $0.024 to $2.431 per gallon. Both prices measuring petroleum products should continue their upward trends this summer despite signs that movement is flattening.


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