Weekly Petroleum Report -- 12/20/2012

December 20, 2012 05:41 AM

Crude Oil --

A number of reports have surfaced which suggest that on the heels of increased production andcrstusm stocks well above five-year levels, the United States may overtake Saudi Arabia as the world's leading producer of crude oil and other petroleum liquids. But this can be difficult to pigeonhole because of the nature of Saudi crude production.

The majority of crude producing nations keep the pedal to the metal and produce at levels very near or at capacity levels. In other words, most countries produce as much crude as they possibly can. Saudi Arabia has a production capacity that is high enough to allow them to adjust production based on global supply/demand factors. This means that most of the time, Saudi Arabia produces at levels below production capacity, leaving itself a high ceiling. With such a nimble production mindset, Saudi Arabia could easily outproduce the U.S. at will, but so doing, they run the risk of producing themselves out of the market, driving prices too low globally to support capacity production.

Whether the U.S. captures the number one crude producing spot is really not that important. What is significant is the fact that the fear premium plays a diminished role in crude prices and declining imports favor moderating pricing here at home.

A recent EIA report says, "Along with changes in U.S. liquids demand, future trends in U.S. production will determine the share of U.S. use of liquid fuels provided by net imports, which has already declined sharply from its peak of 60 percent in 2005 to EIA's estimate of under 40 percent in 2013. Moreover, a higher level of U.S. production can significantly boost the U.S. economy and also tends to hold down world oil prices through its effect on global market balances. While both U.S. and Saudi production trends are closely watched by market analysts, any future crossing of production paths is more likely to fall into the category of an interesting factoid rather than a watershed event."

Currently near-month January 13 crude ranging from 87.81 to 89.88 so far on the day, Thursday, December 20. Presently trading 0.09 lower at 89.42.

Propane --

U.S. propane stocks fell 2.0 million barrels to end at 69.2 million barrels last week, 12.3 million barrels (22 percent) higher than a year ago. Midwest regional inventories dropped by 1.1 million barrels, while Gulf Coast inventories declined by 0.7 million barrels. Rocky Mountain/West Coast stocks dropped by 0.2 million barrels, and the East Coast region gained slightly.

Propylene non-fuel-use inventories represented 5.4 percent of total propane inventories.

Distillate --

Distillate stocks fell off slightly over the report week shedding 1.1 million barrels -- currently 22.1 million barrels below year-ago levels. A snowstorm blanketed parts of the Midwest with snow Wednesday night and temperatures will fall into the coming weeks. This will likely pressure distillate stocks as demand for heating fuel increases.

Inputs Monitor has reported farm diesel moving lower since the last week of October through the entire month of November and into December, landing last week unchanged over the previous week. But declining temperatures will put farm diesel in competition with home heating fuel for distillate stocks, possibly pushing farm diesel pricing higher as a result.




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