Double dose

December 29, 2016 08:39 AM
Daily Energy Markets Report

Energy markets get a double dose of excitement as the Department of Energy’s beloved Energy Information Administration (EIA) releases its weekly supply report for both petroleum and natural gas. The natural gas report gets first billing as it will be released at 9.30 a.m. CST and traders will wait to see if we will break the record for a withdrawal which is expected at -240 bcf. The Weekly Petroleum Status Report will be released at 12:00 p.m. central time and the American Petroleum Institute’s (API) version of that report is raising some eyebrows.

The API, which has been all over the board and totally out of sync with the EIA, reported that U.S. crude supply increased by 4.2 million barrels. Just last week the API reported that crude supply dropped a shocking 4.15 million barrels. The wide swinging numbers that the API has been reporting of late seems to suggest that they probably made a mistake last week and are now trying to fix it.  They also showed a surprise drop in refinery runs and a more reasonable drop of 2.8 million barrels in gasoline supply and a 1.7 million barrel drop in distillates. The market will wait on the EIA report to try to make sense of the discrepancies. Cushing, OK crude stocks rose 500k bbl. If we see oil supply fall in the EIA, we should see oil drive to new highs for the year, confirming our consistent long term bullish outlook. While the market has failed to reach our $60 per barrel objective yet due to a dollar index that has gone parabolic, we still believe it is just going to be a matter of time before we hit that level.

Natural gas prices surged as record breaking demand could lead to a record breaking withdrawal. We saw the January natural gas contract expiration go wild as the realization to the last reaming shorts that this market was not ready to break. The drawdowns that we will see over the next few weeks should alert traders to the ongoing structural tightness of this market. We continue to maintain a long term bullish outlook.

Gasoline demand continues to show strength and we are seeing some talk of butane tightness. That is keeping RBOB solid.

OPEC dissed the U.S. oil exporter when they did not invite us to their non-OPEC meeting saying we were not an oil exporter. Well OPEC, that may be changing. The EIA reported, “The number of countries receiving exported U.S. crude oil has risen since the removal of restrictions on exporting U.S. crude oil in December 2015. U.S. crude oil exports have occurred despite relatively small price spreads between international crude oil and domestic crude oil, as well as other factors that should reduce crude oil exports such as falling U.S. crude oil production and added cargo export costs.”

The EIA says that based on the latest available data, U.S. crude oil exports averaged 501,000 barrels per day (b/d) in the first five months of 2016, 43,000 b/d (9%) more than the full-year 2015 daily average. U.S. exports of crude oil had already increased significantly before the lifting of crude oil export restrictions. These exports were mostly to Canada, which was excluded from the previous restrictions. From 2000 to 2013, U.S. exports rarely surpassed 100,000 b/d. By 2015, the United States was exporting 422,000 b/d to Canada and a total of 26,000 b/d to five other countries. So far in 2016, U.S. crude oil has been exported to 16 different nations, totaling 501,000 b/d.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.