From the Energy Information Agency (EIA) this week:

 

US commercial Crude stocks closed at their highest level ever this week.  This figure does not include products like gasoline, diesel etc.  It also does not include the strategic petroleum reserve, which holds about 600 million barrels as well.  I don’t know enough about inventory levels to really comment on this too meaningfully, and clearly from the chart above, stocks have been hanging out at or above its all time high for the preceding two years or so.

Natural gas storage is now in the beginning of the build phase for the year.  Stocks are built in the summer and depleted in the winter.  We’re at the lowest storage level in five years, due mainly to the very cold winter.  Storage levels are remarkably low when considering the record levels of gas production in the US currently.  US gas storage inventories affect gas price much more than reported oil inventories affect oil price, because oil is easily transported internationally.  US only uses about 1/5^th of crude oil that is produced, and there is no detailed storage information about the other 4/5ths.  Gas on the other hand must be used on this continent, so an EIA gas storage report can dramatically affect gas prices.

 

Also out from EIA this week.  East coast refineries ran nearly half domestic crude oil in January.   It seems that Bakken Crude, which is substantially moved by rail, is now going to the coasts.  There’s already a lot of Eagleford Crude to feed the Gulf Coast refineries (the largest concentration of refining capacity in the world), and the GC needs to run heavier and sour crudes because it has very complex refineries.  If they’re running light sweet crude in very complex refineries then you are not taking full advantage of the asset.  This is one reason why so much Mexican Mayan blend, and Venezuelan heavy crudes go to the Gulf Coast.  It is also the reason why Canadian oil sands oil ends up in the Gulf, whether by rail car or by pipeline.  It is also the reason that we still import lots of Saudi crude, even though there are other producing countries like Nigeria or Angola that are closer by.   Nigeria and Angola produce lighter crudes that tend to end up in Europe.  The tight oil from Bakken and Eagleford tends to be exceptionally light and sweet crude, which is ideal for the simpler East and West Coast refineries.  If current increases in light sweet crude production continue in the US, it would be curious to see if we ever reached the point where were importing heavy crudes from Mexico and Canada and exporting light sweet crudes to be refined elsewhere.

Although crude by rail costs is a higher cost method of transport than pipelines on a per-barrel basis, it has the great advantage that it can travel to where prices are highest.  This allows flexibility in an era of big geographic price differentials.   EIA calculates that 400 mbbl/d were from crude by rail in PADD 1 (US East Coast) this past January.  This is over 80% of the domestic sourced crude refined in the region.

 

 

Market was up and oil prices were down on strong US inventory numbers and possible Libyan production coming back online.  Natural gas was up.  Equities in the sector were fairly uncorrelated, though gas heavy names and especially Marcellus producers seemed to fair best.  Our energy portfolio underperformed pretty badly for the week.  I do have to do some more work on individual companies here, since stock analysis is the main point of this blog, but I'm trying to catch myself back up on what's going on a macro level as I get this blog started.

 

 

 -FM