Gas Draw Above Market Expectation, Prices Rise

Gas Draw Above Market Expectation, Prices Rise

Natural gas storage inventories decreased 19 Bcf for the week ending November 29, according to the EIA’s weekly report. This was higher than the market expectation, which was a draw of 14 Bcf.

Working gas storage inventories now sit at 3.591 Tcf, which is 591 Bcf above inventories from the same time last year and 9 Bcf below the five-year average.

Prior to the storage report release, the January 2020 contract was trading at $2.420/MMBtu, roughly $0.022 higher than yesterday’s close. At the time of writing, after the release of the report, the January 2020 contract was trading at $2.458/MMBtu.

Before the holiday last week, prices were trading around $2.50 and above. However, last Friday, prices saw a decline of ~$0.22 from the close on Wednesday, falling to $2.281. This week, gains have been made on weather forecasts turning colder in the 5-to-10-day period. However, even as temperatures are expected to turn colder, the January contract is still trading sub-$2.50 as of yesterday’s close, closing at $2.408. For prices to garner strength going forward, weather forecasts will need to show extended periods of cold, as the market is currently sitting comfortably on storage inventories and increased production.

See the chart below for projections of the end-of-season storage inventories as of April 1, 2020, the end of the withdrawal season.

This Week in Fundamentals

The summary below is based on Bloomberg’s flow data and DI analysis for the week ending December 5, 2019.

Supply:

  • Dry production decreased 0.14 Bcf/d on the week. Most of the decrease came from the Mountain region (-0.50 Bcf/d) and the East (-0.05 Bcf/d), with an offset from the South Central (+0.38 Bcf/d) and small gains in the Pacific and East.
  • Canadian net imports increased 0.46 Bcf/d mainly due to increased flows into the Northeast.

Demand:

  • Domestic natural gas demand increased 7.64 Bcf/d week over week. Res/Com demand increased 5.55 Bcf/d, while Power and Industrial demand increased 1.66 Bcf/d and 0.43 Bcf/d, respectively.
  • LNG exports remained relatively flat, while ek. With the increase in demand outpacing the increase in supply, expect the EIA to report a stronger draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 78 Bcf. Last year, the same week saw a draw of 77 Bcf; the five-year average is a draw of 78 Bcf.

Total supply increased 0.32 Bcf/d, while total demand increased 7.95 Bcf/d week over week. With the increase in demand outpacing the increase in supply, expect the EIA to report a stronger draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 78 Bcf. Last year, the same week saw a draw of 77 Bcf; the five-year average is a draw of 78 Bcf.

Crude Withdrawal and Expected Extension To Production Cuts By OPEC Increase Prices

Crude Withdrawal and Expected Extension To Production Cuts By OPEC Increase Prices

US crude oil stocks decreased by 4.9 MMBbl. Gasoline and distillate inventories increased 3.4 MMBbl and 3.1 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 3.72 MMBbl alongside gasoline and distillate builds of 2.93 MMBbl and 0.79 MMBbl, respectively. Analysts were expecting a crude oil draw of 1.79 MMBbl. Total petroleum inventories posted a decrease of 4.9 MMBbl.

US crude oil production remained unchanged last week, per EIA. Crude oil imports were down 0.20 MMBbl/d last week, to an average of 6.0 MMBbl/d. Refinery inputs averaged 16.8 MMBbl/d (0.46 MMBbl/d more than last week’s average).

After last Friday’s heavy selling that sent January WTI to a low of $55.02/Bbl, trading on Monday managed to stage a small comeback thanks to Chinese PMI data showing a modest expansion of November manufacturing activity. Tuesday trading was somewhat choppy, with a mix of bearish and bullish news sending prompt futures to a low of $55.35/Bbl and reaching a high of $56.80/Bbl later in the session (settling at $56.10/Bbl). Hopes for an easing of US-China trade tensions were largely dashed after President Trump suggested that a trade deal may not be reached until after the 2020 election. The president’s comments contradicted recent assertions from the administration that negotiations were going well. Renewed trade war concerns were only mollified by renewed talk of deeper production cuts by OPEC and allied non-OPEC oil-producing countries that will be meeting in Vienna later this week. The minimum expectation among market participants is for an extension of the existing agreement beyond its current March expiration, with some upside potential if cuts are increased by another 400 MBbl/d, as is currently being discussed.

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The Week Ahead For Crude Oil, Gas and NGLs Markets – December 2, 2019

The Week Ahead For Crude Oil, Gas and NGLs Markets – December 2, 2019

CRUDE OIL

  • US crude oil inventories increased by 1.6 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories increased 5.1 MMBbl and 0.7 MMBbl, respectively. Total petroleum inventories posted a slight increase of 0.1 MMBbl. US crude oil production rose 100 MBbl/d, per EIA, while crude oil imports were up 0.22 MMBbl/d to an average of 6.2 MMBbl/d.
  • WTI prices started the week firm and remained at the high end of the recent range, around $58. The trade seemed to be waiting for additional news regarding China-US trade negotiations. Positive news that China’s top negotiator (Liu He) had phone conversations with Treasury Secretary Steven Mnuchin and Trade Representative Lighthizer brought optimism regarding the negotiations. The Chinese commerce ministry was quoted as saying, “Both sides discussed resolving core issues of common concern.” These developments were dealt a possible blow by the news of Trump signing into law a bill backing the Hong Kong protestors. This will likely pressure the parties trying to push the phase 1 deal.
  • As the week progressed, trade received some bearish news as the OPEC+ meeting, coming later this week, changed the expectation of deeper cuts by the groups to one of just extending the existing agreement. Saudi Arabia indicated to other OPEC members that it will no longer facilitate the excessive production by others. Adding to this news was the Russian oil minister’s suggestion of postponing the new supply caps until April.
  • The CFTC report was not released on Friday due to the holiday. The precipitous decline in prices on Friday was likely stemmed from renewed trade war concerns following President Trump’s signing of the Hong Kong Human Rights and Democracy Act supporting Hong Kong protesters.
  • Market internals last week developed a neutral to bearish bias going into this week. The high at $58.68 was met with selling last week, and the selling accelerated during the Friday trade day. The declines held the lows of the recent range at $55.00. A nearly $3.00 drop on Friday is a bearish indicator long term for the week, but it also will provide a counter bounce during the week. The inability of the market to extend the gains or losses beyond this range ($54-$59) suggests that trade will need a significant event or news to drive the speculative trade to shift positions.
  • Similar to last week, rallies will challenge the highs from September of between $58.49 and $59.39. Should there be additional news of the tariff stalemate continuing this week, it is likely prices will bring another test at the low end of the range, at $55.

NATURAL GAS

  • Natural gas dry production increased 1.11 Bcf/d last week with the South Central accounting for most of the gains (+0.90 Bcf/d), while Canadian imports decreased by 0.75 Bcf/d.
  • Demand showed the Res/Com market sector increasing 0.77 Bcf/d, while Power demand decreased 2.71 Bcf/d and Industrial demand increased by 0.07 Bcf/d. LNG exports decreased 0.27 Bcf/d on the week, while Mexican exports decreased 0.08 Bcf/d.
  • These events left the totals for the week with the market increasing 0.36 Bcf/d in total supply, while total demand decreased 2.21 Bcf/d.
  • The storage report last week showed a withdrawal of 28 Bcf. Total inventories are now 548 Bcf higher than last year and 31 Bcf below the five-year average. The current weather forecasts from NOAA, in the near term (coming week), show normal to above-average temperatures throughout the US. The 8- to 14-day forecast is similar to the short-term forecast, showing normal to above-average temperatures throughout the US.
  • The CFTC report was not released last week due to the holiday. With prices falling during the week and significant gains in total open interest, expect a gain in the Managed Money short position when the data is released today.
  • The market internals developed a more bearish bias as prices failed on the rally and declined below the support zone around $2.50. These events occurred with strong gains in total open interest, but volume was below that of the previous week due to the holiday.
  • Prices have defined the area at the island gap ($2.724) as major long-term resistance and will continue to find sellers on any challenges. The January contract held support at $2.50 for a brief period, but with the expiration of the December contract below the key area, it was only a matter of time before the January contract broke down below the December contract. With this breakdown last week, the lows established in October, around $2.20, will be targeted by the bears.

NATURAL GAS LIQUIDS

  • Purity product prices were both up and down last week. Ethane was down 4.6% to average $0.189/gal for the week, while normal butane was down 0.8% to average $0.729/gal. Propane gained 3.7% to average $0.567/gal, isobutane gained 3.6% to average $0.827/gal, and natural gasoline increased by 6.7% to average $1.313/gal.
  • Propane continues to be supported during the winter heating season, but is also being supported by international demand. Natural gasoline prices did see an uptick, but we suspect this was due to short covering and low trading volume around the Thanksgiving holiday. Butane prices didn’t see too much price action on a weekly average, although the fire at TPC Port Neches took down a butadiene unit, causing prices to decline on a daily basis.
  • The EIA reported a draw in propane/propylene stocks of ~0.68 MMBbl last week. Stocks now stand at 93.5 MMBbl, which is roughly 12.38 MMBbl higher than the same week in 2018 and 20.37 MMBbl higher than the same week in 2017.

SHIPPING

  • US waterborne imports of crude oil fell for the week ending November 29, 2019, according to Enverus’s analysis of manifests from US Customs & Border Patrol. As of December 2, aggregated data from customs manifests suggested that overall waterborne imports decreased by nearly 1 MMBbl/d from the previous week. The decrease was driven by lower imports across the board, with the largest decrease happening in PADD 5, which fell by nearly 820 MBbl/d. PADD 1 imports dropped by 622 MBbl/d and PADD 3 imports fell by nearly 50 MBbl/d. At 1.946 MMBbl/d, waterborne imports based on bills of lading are at their lowest weekly level since at least 2017.

  • With November now complete, total waterborne imports of crude oil per analysis were 2.89 MMBbl/d for the month, higher than October’s level of 2.68 MMBbl/d but the second lowest since at least 2017. See below for the top sources of daily barrels of crude in November.

Gas Draw Meets Expectations, Forecast Changes Bring Volatility

Gas Draw Meets Expectations, Forecast Changes Bring Volatility

Natural gas storage inventories decreased 28 Bcf for the week ending November 22, according to the EIA’s weekly report. This was higher than the market expectation, which was a draw of 27 Bcf.

Working gas storage inventories now sit at 3.610 Tcf, which is 548 Bcf above inventories from the same time last year and 31 Bcf below the five-year average.

Prior to the storage report release, the January 2020 contract was trading at $2.507/MMBtu, roughly $0.026 lower than yesterday’s close. At the time of writing, after the release of the report, the January 2020 contract was trading at $2.518/MMBtu. The December contract expired yesterday at $2.470.

Volatility has been the theme of the market to start the winter season. Since the beginning of November, the December 2019 contract has traded in a ~$0.40 range, between $2.45 and $2.84, and the contract closed near the bottom of the range. The wide range has been, and will continue to be, driven by changes in weather forecasts. Current weather forecasts show below-average temperatures through the weekend and early next week. By mid-next week, temperatures will moderate, with above-average temperatures expected.

See the chart below for projections of the end-of-season storage inventories as of April 1, 2020, the end of the withdrawal season.

This Week in Fundamentals
The summary below is based on Bloomberg’s flow data and DI analysis for the week ending November 27, 2019.

Supply:

  • Dry production increased 0.88 Bcf/d on the week. Most of the increase came from the South Central (+0.67 Bcf/d) where Texas (+0.48 Bcf/d) and Oklahoma (+0.15 Bcf/d) accounted for most of the increase.
  • Canadian net imports decreased 1.21 Bcf/d mainly due to decreased imports to the Midwest and the Northeast.

Demand:

  • Domestic natural gas demand decreased 3.78 Bcf/d week over week. Res/Com demand fell 3.09 Bcf/d, while Power and Industrial demand decreased 0.26 Bcf/d and 0.44 Bcf/d, respectively.
  • LNG exports fell 0.10 Bcf/d, while Mexican exports decreased 0.21 Bcf/d on the week.

Total supply decreased 0.33 Bcf/d, while total demand decreased 4.17 Bcf/d week over week. With the decrease in demand outpacing the decrease in supply, expect the EIA to report a weaker draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 23 Bcf. Last year, the same week saw a draw of 63 Bcf; the five-year average is a draw of 46 Bcf.

 

Prices Drop As The Crude Inventory Builds Up

Prices Drop As The Crude Inventory Builds Up

US crude oil stocks increased by 1.6 MMBbl. Gasoline and distillate inventories increased 5.1 MMBbl and 0.7 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 3.64 MMBbl alongside a gasoline build of 4.38 MMBbl and a distillate draw of 0.67 MMBbl. Analysts, to the contrary, were expecting a crude oil draw of 0.42 MMBbl. Total petroleum inventories posted an increase of 0.1 MMBbl.

US crude oil production increased 100 MBbl/d last week, per EIA. Crude oil imports were up 0.22 MMBbl/d last week, to an average of 6.2 MMBbl/d. Refinery inputs averaged 16.3 MMBbl/d (0.1 MMBbl/d less than last week’s average).

WTI futures were up for a second day on Tuesday, with the January contract settling at $58.41/bbl. Intraday trading lifted prompt futures to a high of $58.56/Bbl before heading lower into the close. Renewed optimism over trade talks between the US and China was a likely driver, but trading volume was also fairly low during the session. With OPEC/non-OPEC meetings planned for December 5-6 in Vienna, yesterday’s price movements could very well have been the result of traders putting on positions ahead of the talks. Nevertheless, Tuesday’s news that China’s top trade negotiator, Liu He, had a phone conversation with Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer marks at least some improvement in US-China relations. According to a statement from China’s commerce ministry, “both sides discussed resolving core issues of common concern” and discussions were still ongoing regarding a phase one agreement.

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