Ag-Land FS, Inc.
Energy Market Update July 13, 2016
NYMEX Prices
August Crude Oil
August Gasoline
August Heating Oil
August Natural Gas
Close
Wk. Change
$ 44.75
$ 1.3784
$ 1.3809
$ 2.737
$ -2.55
$ -.0565
$ -0.0876
$ -0.052
Market Comments:
Markets sold-off today on a surprisingly bearish inventory report, erasing yesterday’s
gains. The draw in crude stocks was less than expected, and refined products recorded an
unexpected build. Most surprising was the build in gasoline stocks, in the midst of peak driving
season we traditionally see a draw in gas inventories. Adding to the unexpected build in
products, the EIA showed an increase of 57,000 barrels per day in domestic crude production,
the first increase in months (see table below for DOE Inventory Report details). The market
sentiment appears to be slowly shifting as the oversupply in products and crude is back on the
minds of traders. The market talk earlier this spring and summer was dominated by short-term
supply disruptions in Canada, Nigeria and Libya. As those countries slowly resume normal
production levels, the market once again has to contend with the fact that there is an abundance
of oil on the market, and the demand picture has yet to improve, as the uncertainty of ‘Brexit’
continues to loom and the Chinese economy sputters.
Crude
DOE
Gasoline
Distillate Fuel
Change
Total
3Yr
Avg.
5 Yr.
Avg.
Change
Total
3Yr
Avg.
5 Yr.
Avg.
Change
Total
3Yr
Avg.
5 Yr.
Avg.
-2.5
521.8
378
391
+1.2
240.1
214
214
+4.1
153.0
122
126
EST.
+2.500/-4.300
+0.500/-4.500
+3.000/-2.000
Propane
Total +2.6 87.4
Crude +2.200 Cushing -0.166
Midwest +1.4 27.3
Gulf +0.4 53.0
Gasoline +1.500
Distillates +2.600
API’s
Markets started the morning lower after a bearish report from the API, a statement from
the International Energy Agency (IEA), and decreased crude demand out of China. The
IEA said that crude inventories continue to rise last month, pushing floating storage to its
highest level in seven years. The IEA said, “stocks are at such elevated levels, especially for
products for which demand growth is slackening, that they remain a major dampener on oil
prices.” Adding to the downward pressure, the API’s weekly inventory estimate was more
bearish than expected. According to the API, nationwide crude inventories rose by 2.2 million
barrels last week, despite expectations of a 3 million barrel draw. Gasoline inventories grew by
1.5 million barrels and diesel increased by 2.6 million barrels. Yesterday’s API build in crude
stocks was the largest in 10 weeks. On the demand side, China reported that its crude imports
hit a five-month low in June, to 7.5 million barrels a day. The slowdown in imports was blamed
on congestion of major ports and heavy maintenance being performed at state-owned refineries.
Oil research firm, Rystad Energy estimated that for the first time in history the U.S.
contains more proven oil reserves than any other country, including Saudi Arabia and
Russia. Rystad credited the rise to a sharp increase in the number of discoveries within the
Permian Basin in Texas over the past
two years. Rystad found that the US
had 264 billion barrels of oil in
reserve, ahead of Russia at 256 billion
barrels and Saudi Arabia at 212 billion
barrels. The current worldwide total of
proven reserves is estimated at 2.1
trillion barrels, a 70 year supply at
today’s production rate of roughly 30
billion barrels per year. This analysis
was conducted over a three-year time
period, collecting data from 60,000 oil
fields worldwide.
A ruling was announced yesterday from an international arbitration court finding China
guilty of breaching the sovereign rights of the Philippines, concluding they have no legal basis
to territorial claims in the South China Sea. China is rejecting the ruling, saying its military
would defend its sovereign rights, stirring the nerves of global shippers and oil traders.
Although shippers and oil traders said they do not expect an immediate impact on the industry
as a result of the ruling, oil prices jumped following the court’s ruling. The South China Sea is
responsible for roughly $5.3 trillion of seaborne trade every year and almost a third of global
crude oil and over half of global LNG pass through the South China Sea each year. Furthering
complications; according to the EIA there are 11 billion barrels of proven crude oil and 190
trillion cubic feet of natural gas reserves in within the disputed South China Sea.
As summer continues and even though gas demand remains strong, it’s being realized that
the U.S. is in a midst of gasoline glut; pushing crack spreads lower at a time when they should
be elevated. Overall, U.S. gasoline stocks were at 240 million barrels in today’s inventory
report, nearly 10 percent higher than last
year and 15 million barrels more than the
five-year average. Refiners are citing an
earlier switch to maximum gasoline
production this spring in anticipation of
strong demand. Imports have also been
higher than normal in recent weeks,
adding to the glut. It’s being reported
that a number of gasoline cargoes from
Europe and the Middle East are dropping
anchor in New York Harbor waiting for
tank space before they can unload, or
otherwise being diverted to ports further
south.