Fundamental Friday: 1 April 2016

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Crude oil: On Wednesday, the Energy Information Industry estimated a third straight week of declining production at 9.022 million b/d. From last week, suppliers pumped 16,000 b/d less and since the beginning of the month pumped 56,000 b/d. This decrease in production come just a few weeks before a meeting between non-OPEC producers and Saudi Arabia is scheduled. A freeze might be unlikely if this trend continues. Stocks continued the trend of growth through the end of March with last week's estimate reported at 1.229 billion barrels, slightly higher by 2.3 million barrels.As production slows, the increasing stock trend may lose steam eventually. Look for the weekly change to shrink.

Crude oil inputs jumped 16.234 million b/d despite flat movement earlier in the month. The jump of 414,000 b/d represents the largest gain this month and brings the monthly change to a growth of 323,000 b/d. Rig utilization is also up at 90.4%. The last time more than 90% of rigs were operable was January 15th. The surprise gain in refinery capacity can probably be attributed to the trend of higher gas prices. Companies will be looking to take advantage of higher prices in order to bolster their downstream bottom line in preparation for first quarter earnings reports.

This Friday, the WTI spot price looks to be closing out a losing trend at around $37; Brent should close around $38.75. The spot prices are trading -6.74% and -5.85% lower, respectively, due to reports that an OPEC output freeze might not be in the supply picture anymore.


Natural gas: Fundamentals for natural gas extraction showed losses for the previous week. Stocks are down -25 bcf to 2468 bcf. That adds up to a net change of 11 bcf for the month. The rig count reverted back to mid-March levels after 3 gas rigs went offline, but the proportion of oil to gas rigs remains the same. Estimates of supply and demand change were -1.19% and -4.8% respectively. The decrease in overall supply and demand could have something to do with the warming weather. Look for that trend to continue in the future.

In its weekly report, the EIA mentions the approval of an expansion to the Rockies Express Pipeline. The expected will allow the flow of gas from west-to-east to be reversed to include capacity for east-to-west transport. The enhancement should increase capacity from the overflowing Marcellus and Utica shale plays.

Henry Hub spot price managed to top $2.00 this week during trading. Today, natural gas looks to be closing out around $1.95 maintaining weekly gain around 3.4% and a monthly jump of 10.3%


Gasoline: Stocks on both sides of the refinery decreased this past week. Total finished gasoline fell by 872,000 barrels, larger than losses for the rest of the month and reflecting refinery maintenance. Total component gasoline fell by 1.6 million barrels from last week continuing a trend of sharp declines. Weekly gasoline production fell by 253,000 barrels another possible effect of refineries going offline. Product supplied grew slightly possibly reflecting strong consumption that comes with warmer weather.

 Gas and diesel prices continue their upward trend above $2.00 a gallon this week. A U.S. average regular gasoline price of $2.066 a gallon marks the seventh gain where all regions of the country saw increases. Diesel gains were weaker but still evident with prices at $2.121 this week and only the Midwest and West Coast (less California) regions seeing decreases. Overall fuel prices should continue to get higher as the warmer weather encourages more consumption.



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