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CRUDE OIL
- US crude oil inventories posted a decrease of 8.5 MMBbl last week, according to the weekly EIA report. Gasoline inventories decreased 1.8 MMBbl, while distillate inventories decreased 0.9 MMBbl/d. With the draw in crude inventories, total petroleum inventories posted a significant decrease of 10.1 MMBbl. US crude oil production increased 900 MBbl/d last week, per EIA, as the hurricane-related shut-ins came back online. Crude oil imports were down 0.37 MMBbl/d to an average of 6.7 MMBbl/d.
- Prices started the week on solid footing with concerns around the shipping lanes in the Strait of Hormuz. With Iran’s confiscation of a British vessel the previous week, the market remained concerned about the navigation channel, as one-fifth of the world’s oil supply travels through this critical area. Currently, the US, Britain, and France have pledged to secure safe passage through the waterway, and last week these countries asked Germany to assist in combating any altercations by Iran. As long as Iran continues this disruptive behavior pattern, WTI will likely be supported, but in a diminutive way, as trade seems more focused on the demand side.
- That focus became evident after a bullish inventory release, which only held the gains up to $58.82 temporarily. When the Trump administration announced additional tariffs on Chinese products on Thursday, most objective traders realized that the trade issues between the US and China are not close to a deal and that global economic growth dissipates as the two largest economies spar. This news was especially troubling to the market when the two sides agreed to a “truce” at the G-20 meeting in June only to have the Chinese back off their commitments to buy US agricultural products, forcing the US hand into adding the new tariffs in September.
- Last week’s price action clearly displays the market’s reaction to news regarding the major issues of Iran’s meddling and the global economy. The immediate knee-jerk response to these struggles should continue if there are no long-term solutions to these issues. Neither issue is likely to be solved quickly (especially the US-China trade dispute), so the market may gradually drift lower due to global economic weakness while experiencing rapid runs due to Iranian misbehavior.
- The CFTC report released Friday (dated July 30) provides little new information as the standoff in the market continues. The Managed Money long sector added 4,131 contracts. The Managed Money short positions increased their positions by 2,235 contracts.
- Market internals maintain a neutral to slightly negative bias with the trade last week. Weekly volume was higher week over week, and open interest showed gains, as prices rallied only to decline on the tariff news.
- WTI has traded in a range between $50 and $61 this summer, and without additional substantive aggression by Iran forcing a conflict, it is unlikely that prices will garner the support to trade up to the April highs of $66.60. The market has defined the global economic slowdown as the most important element to trade. Due to the focus on the tariff issue and slowing global growth, the market should drift down, with brief rallies on Middle East news. Prices will test the major support zone around $50.00 that held the market in May.
NATURAL GAS
- Natural gas dry production showed an increase of 1.22 Bcf/d, as significant gains were made from the Gulf shut-ins coming back online. Canadian imports increased by 0.33 Bcf/d.
- Res/Com and industrial demand increased 0.07 Bcf/d and 0.08 Bcf/d, respectively, while power demand increased 2.28 Bcf/d with warmer temperatures returning. LNG exports dropped 0.08 Bcf/d, while Mexican exports lost 0.02 Bcf/d. These events left the totals for the week showing the market gaining 1.55 Bcf/d in total supply while total demand increased 2.48 Bcf/d.
- The storage report last week showed the injections for the previous week at 65 Bcf. Total inventories are now 334 Bcf higher than last year and 123 Bcf below the five-year average. Current weather forecasts show the coming two weeks with moderating temperatures in the Midwest and East, with heat contained within the Southwest, Texas, and the Southeast.
- The moderating forecasts will continue to pressure prices, with a test of $2.00 coming. The only areas with bullish temperatures are the Southwest and the Southeast. Those areas may increase regional demand, but are unlikely to change the bearish perceptions of market participants. Without significant demand, inventories for storage should end over 3.6 TCF.
- The CFTC report released last week (dated July 30) continued the recent trend of expanding short positions by the speculators. The Managed Money short position increased its exposure by adding 40,315 contracts, while the Managed Money long position increased by 893 contracts. This additional selling by the speculators covered the expiration time period and can only be interpreted as very bearish.
- Market internals continued an increasing bearish bias on the week, as the volume was up to the previous week, while total open interest gained week over week (according to preliminary data from the CME).
- The fundamentals continue to promote a bearish bias, continuing the trend developed over the summer. This week will likely have a test of the $2.00 area. From there, declines will push prices lower to support, dating back to May ’16, between $1.952 and $1.909. Any rally will run into selling at the July expiration at $2.29 and up to the July expiration high of $2.324, as that area found selling last week.
NATURAL GAS LIQUIDS
- NGL prices were mainly up this week, except for ethane. Ethane dropped $0.029 to $0.114, propane gained $0.017 to $0.435, normal butane gained $0.048 to $0.492, isobutane gained $0.050 to $0.694, and natural gasoline gained $0.010 to $1.034.
- US propane stocks increased ~1.40 MBbl the week ending July 26. Stocks now sit at 80.45 MMBbl, roughly 14.18 MMBbl and 12.85 MMBbl higher than the same week in 2018 and 2017, respectively.
- EIA reported record NGL production for May 2019, reporting production of ~4.84 MMBbl/d. This tops the previous record daily production by 51 MBbl/d, reported for April 2019. PADD 3 production led the production increase, gaining 79 MBbl/d. All other PADDs showed slight decreases from April to May, slightly offsetting the PADD 3 increase.
SHIPPING
- US waterborne imports of crude oil fell for the week ending August 2, according to DrillingInfo’s analysis of manifests from US Customs & Border Patrol. As of August 5, the data showed PADD 1 imports fell by more than 375k Bbls/d while PADD 5 imports fell by more than 50k Bbls/d. PADD 3 waterborne imports rose, increasing by nearly 250k Bbls/d.
