Fundamental Friday: 3 June 2016

Crude oil: Crude oil fundamentals support another week of a shrinking glut. Domestic production fell 32,000 b/d to 8.735 million b/d. Net change in May output came out to 90,000 b/d a reduction of just over 1 percent. If the trend continues through the end of the year, extraction rates could approach levels close to 8 million b/d. Crude oil stockpiles added on to it loss last week increasing the streak to two. Last week stocks fell 1.37 million barrels to 1.238 billion barrels total. The draws on inventory, coupled with further production cuts, are pressuring investors into a bullish energy outlook. A continuation of these trends could result in pushing prices above $50 a barrel.

Refinery data were, once again, relatively flat from last week. After losing just 73,000 b/d worth of refinery inputs, total inputs ended at 16.206 million b/d. Compared to months in the first quarter of the year, refineries are taking in high amounts of liquids. Capacity utilization remained just below 90 percent after a flat change of 0.1 percent last week. As downstream operations approach the peak refining month of July, look for the combination of falling upstream and heating downstream capacities to encourage more bullish trading on the futures market.

Crude oil spot prices resisted the $50 ceiling that appears to have taken effect this week. Flat movement all week has WTI trading around $48.80 on Friday, a loss of just over 1 percent. The Brent spot price logged a flat loss of 0.24 percent this week with a close around $48.82 on Friday.

Natural gas: Natural gas fundamentals continue to respond to the cooling season as temperatures. Underground stockpiles grew by 82 bcf to 2907 bcf. The growth was slower than the five-year average as a result of a smaller rig count. Pacific stocks are actually smaller than they were a year ago. Operating rigs fell 5 to 82, a new all-time low and a sign that stockpile growth could slow in the near future. There was no supply change from the week before as producers extracted 79.6 bcf/d, but demand grew by 4.4 bcf/d to 68.1 bcf/d for the week.

Due to higher temperatures, air-conditioning demand has ramped up consumption well over the 5-year average. According to EIA estimates, "power burn on May 31 was at its highest level so far this year at 31.2 bcf." In fact, this summer, so far, has produced bullish temperature and consumption figures. The EIA also reports that "in 2016, average power burn has exceeded 2015 levels by 8.6 percent or 2.0 bcf/d." The consumption from the Southeast is up over 10 percent from last year for the month May.

Natural gas spot prices staged an impressive comeback this week adding over 10 percent. After starting around $2.16 on Tuesday, traders lifted the Henry Hub spot price to settle around $2.40 on Friday.

Gasoline: Gasoline fundamentals remain relatively flat from last week. Stocks of finished gasoline fell by just under 900,000 barrels to 23.456 million barrels total. Component stocks fell by just over 600,000 barrels to 215.163 million barrels total. Higher consumption continues to mitigate any significant growth in stocks of refinery inputs and outputs. Finished gasoline ticked higher by 50,000 b/d to end at 9.916 million b/d, relatively higher than the 2016 first quarter averages. Product supplied fell by about 100,000 b/d to 20.335 million b/d last week.

Gasoline prices continue their rebound going into the summer months. Regular gasoline price grew by $0.039 to $2.339 per gallon. Diesel prices grew by $0.025 to $2.382 per gallon. Despite weeks of straight inclines, both prices are well below what they were last year. Regular is down $0.44 and diesel is down $0.52 from last year's prices.


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