Oil prices stable after producers agree to freeze

February 16, 2016 08:38 AM

The winter to date is still running warmer than normal even after cold blast over major parts of the United States last week. The short-term forecasts are once again projecting a return to warmer than normal temperatures later this week and one that is likely to last through the second half of February. The winter heating season continues to evolve with NOAA recently (Jan 21) forecasting a warmer than normal final third of the (Feb-Mar) winter season in the regions of the United States that consume the majority of the heating oil (east coast).

The following table summarizes the population weighted heating degree days for the total U.S. and weighted for HO customers. The table shows the average monthly level for last year (2014/2015 heating season) along with the heating season to date and projections for the current week and for the month of January. As shown on the table the season to date (through Feb 13 is running about 19.3% below normal for the total United States and about 21% warmer than normal weighted for HO customers.

The projection for the current week ending on Feb 20 is not supportive with HDD expected to come in below normal and below last year for the United States and warmer than the previous week. With more than half of the official heating season now in the history books, the rest of the winter is going to have to be exceptionally cold to make up for the lost demand from the first half of the winter.

For example, the rest of the winter has to be colder than normal to generate about 22% more degree days compared to normal to make up for the lost HDD from the winter season to date and thus lost heating demand. Based on the latest longer term forecasts this still does not seem likely.

This week the EIA & API inventory data will be delayed due to the Presidents' Day Holiday in the United States. The API data will be released late Wednesday afternoon with the EIA inventory report scheduled for release on Thursday at 11 am. Finally the EIA Nat Gas inventory report will be released on Thursday at 10:30 am EST.

My projections for this week’s inventory report are summarized in the following table. I am expecting a build in crude oil inventories along with a build in gasoline with a draw in heating oil stocks as refinery runs are projected to increase. I am also expecting a build in total combined crude and refined product inventories to another new record high level.

I am expecting crude oil stocks to increase by about 4.2 million barrels. If the actual numbers are in sync with my projection the year-over-year comparison for crude oil will now show a surplus of 80.6 million barrels while the overhang vs. the five-year average for the same week will come in around 198.2 million barrels.

I am expecting crude oil inventories in Cushing, OK to show a small build this week even as the net inflow (inflow-outflow) into Cushing decreased slightly last week. With storage capacity still available in Cushing storage trades are taking place as the economics of storing oil in both the United States and internationally are interesting.

The pipeline flow of Canadian crude into Cushing, OK, decreased 34,897 bpd to 249,825 bpd last week, while volumes into Patoka, IL, on TransCanada’s Keystone Pipeline were 47,765 bpd above the previous week. The volumes into Patoka were 45% above the year-ago week, while Canadian crude volumes moved to Cushing were 24.6% lower than the same week last year.

Canadian crude imports into the United States increased marginally for the week ending Feb 5 by 8,000 bpd to 3.446 mn bpd and are now only 3,000 bpd below the all-time hit earlier this year, according to the U.S. Energy Information Agency.

Last week, Canadian heavy crude price differentials were stronger vs. West Texas Intermediate. The Western Canadian Select crude price traded around March WTI CMA minus $12/bbl at the end of the week, a narrowing of the discount by $2.20/bbl compared to the previous week. At the end of last week, WCS traded around WTI CMA minus $17.45/bbl.

According to Genscape there was a small decrease last week in the pipeline net flow (inflow minus outflow) into Cushing, which could result in a minor change in Cushing inventories according to the Genscape pipeline flow data. The net flow was 1.17mn bbls for the week ending Feb 12 compared with 1.27mn bbls the previous week.

With refinery runs expected to increase by 0.5% I am expecting a build in gasoline stocks. Gasoline stocks are expected to increase by 1.0 million barrels, which would result in the gasoline year over year surplus coming in around 13.6 million barrels while the surplus versus the five year average for the same week will come in around 20.1 million barrels.

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Energy Market Analysis is published daily by the Energy Management Institute 1324 Lexington Avenue, # 322, New York, NY 10128. Copyright 2008. Reproduction without permission is strictly prohibited. Subscriptions: $129 for annual orders. Editor in Chief: Dominick Chirichella, Publisher: Stephen Gloyd, Editor Sal Umek.