Finally an Inventory Gain

Jim Brown
 
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After seven weeks of inventory declines in crude oil the EIA finally posted a minor gain.

Crude inventories rose a miniscule 1.0 million barrels after 7 weeks of declines totaling -41.2 million barrels. Imports rose +650,000 bpd or 4.55 million for the week. Refinery utilization declined from 90% to 86.5%. That suggests we should have seen a much larger build in inventories with refiners processing less oil and more oil coming from imports. We may be seeing some odd numbers as a result of the holiday reporting schedule.

U.S. production declined slightly by -110,000 bpd and that is a direct result of the winter storms and some minor pipeline outages. Apache (APA) reported last week that winter storms, abnormally icy roads and power outages had impacted their production for the last six weeks. This is going to be a recurring theme as the coldest winter in 30 years continues.

Gasoline inventories rose by 2.1 million barrels compared to estimates for a gain of +1.7 million. The winter driving conditions where many people stay home helped to increase gasoline inventories. If we are not driving we are not consuming.

Distillate inventories declined -3.2 million barrels and that is another anomaly since thousands of airline flights were cancelled. That means millions of gallons of jet fuel were not used and inventories should have remained flat or risen slightly. I think this is also related to the holiday reporting schedule.

Refiners, pipelines and anyone storing oil and refined products submit reports weekly to the EIA. This comes from thousands of locations and covers over 900 million barrels of oil and refined products. If only a couple of those reports were delayed we can get those big swings in the data. The EIA tries to estimate it when they don't get the reports since it will all work out in the weeks ahead when the data flow returns to normal.

The current winter storm, Janus, is causing havoc in the Northeast and this will be reflected in next week's report and probably the week after as well. Forecasters are now predicting another winter storm for Super Bowl week so reporting conditions may not return to normal until spring.





The coldest winter in decades is playing havoc with natural gas and propane prices. The natural gas inventory report out today showed a much lower than expected draw of -107 Bcf but prices did not decline. With only 2,423 Bcf remaining in storage a couple more weeks of the record draws of -287 Bcf we saw the prior week could seriously deplete existing inventories. Gas prices remained at two-year highs of $4.83.

Natural gas inventories are -19.1% lower than the same period in 2013 and -13.2% lower than their 5 year average.

Natural gas producers are probably selling hard into the futures market with prices this high. By hedging future production at these price levels they guarantee a profit long after prices decline.


Even worse is the impact on propane prices. More than 14 million homes are heated with propane and there are reported shortages in 18 states. The super cold winter is causing furnaces to run constantly and that is depleting supplies on an aggressive basis.


Wholesale propane prices have shot up from $1.15 in October to $2.10 in January and that is for last week. A local supplier claims they have risen another 75 cents a gallon already this week.

I am a propane customer. I filled my tank in early November for $2.29. After two months of sub zero weather in the Colorado foothills and two months to go I had it topped off again today. It cost me $3.87 per gallon for 500 gallons. I almost choked. I thought the supplier was scamming me until I looked up the local and national prices.


The days of inventory at the present rate of demand have declined to only 21.3 days. Demand is 1.746 mbpd and production is 1.4 mbpd. Imports are 0.23 mbpd. The current rate of demand is just below a three-year high at 1.775 mbpd. Another polar vortex event could be seriously damaging to existing inventory levels.


Propane supplied in the Midwest are already at the lows we saw last year in late March and dropping fast.


If you are running low on propane I urge you to think twice about putting on an extra sweater and keeping the thermostat low. The bill on a fill up could produce cardiac arrest.

Market

The market is still under pressure and this time it was from China. The manufacturing PMI fell into contraction at 49.6 for January and into contraction territory. The Dow plunged to 16,140 and the S&P to 1,820. The Nasdaq and Russell remained the strongest indexes but they did drop sharply.

The S&P, Nasdaq and Russell 2000 all bounced from strong support. We could see a week ending short squeeze on Friday that could be tradable.

I would be wary of adding to any long term plays unless you are buying them on the dip. Wait until the S&P moves over 1,850 before chasing prices higher.

Jim Brown

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