- US crude oil inventories posted an increase of 5.5 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 2.1 MMBbl and 0.7 MMBbl, respectively. Total petroleum inventories showed a large increase of 8.8 MMBbl. US crude oil production increased 100 MBbl/d last week, per EIA. Crude oil imports were up 1.16 MMBbl/d to an average of 7.1 MMBbl/d versus the week prior.
- The WTI price exploded upward early in the week on news that the US had decided to cancel Iranian sanction waivers. This bullish announcement added fuel to the directional run that has been based on the supply reductions from OPEC and non-OPEC participants since early this year. The Trump administration’s canceling of the waivers could erase as much as 1 MMBbl/d of additional supply in a market that has already been tightening given OPEC-led supply cuts and declines from Venezuela.
- The bullish enthusiasm ran into a solid wall in the middle of the week, with the inventory release showing significant gains in crude and total inventory levels. On Friday the run hit another speed bump when President Trump told reporters at the White House that he had “called OPEC” seeking lower gasoline prices and tweeted later that he had discussed increasing oil flows with Saudi Arabia and that “all were in agreement.” There had already been news of discussions between OPEC and Russia about the possibility of lifting the supply cuts during the second half of the year due to concerns that US producers will continue to ramp up production, taking market share in the global market from OPEC and Russia.
- The Iranian sanctions and the supply cuts impart tremendous significance to the upcoming OPEC meeting in June. While OPEC (primarily Saudi Arabia and UAE) and Russia can offset the impact of the Iran sanctions, the market will have to assess the spare capacity of global supply. This uncertainty, the continued unrest in Libya, and the threats from Iran closing the Strait of Hormuz will likely lead to a volatile period for WTI.
- The CFTC report (positions as of April 23) showed the Managed Money long component increasing its length by 7,195 contracts while the short component dropped 3,153 contracts. Producers and other participants utilizing swap dealers for hedging risk was up 49,162 contracts in the short sector and represents the largest sector of open interest in the report.
- The decline on Friday expanded the range of prices to $4.32 for the week following, setting a recent high of $66.60. From there, prices corrected, falling to $62.28 on Friday. The decline sent participants a cautionary signal, but the market internals remain positive to neutral with the momentum indicators backing off over-bought levels. The volume was up week on week (discounted by the holiday-shortened week prior), but open interest did gain slightly during the week.
- As expected, prices consolidated, retracing to lows from early April trade. The declines during a week that contained the elimination of sanction waivers suggest that expectation had already been part of the price run. As traders continue to digest the headlines, prices are likely to have a higher level of volatility near term than in recent months. The high side of the range that the volatility will test is between $65/Bbl and $68/Bbl, with last week’s high similar to the highs established in January 2018 ($66.66/Bbl). This area held the market for four months before the major break-out in spring and summer 2018. With the weak close, expect continuation of the declines, perhaps testing the support from the March break-out area ($60.00/Bbl) in the coming weeks.
- Natural gas dry production showed a decrease of 0.60 Bcf/d. Canadian imports also decreased 0.33 Bcf/d.
- Res/Com demand fell 3.69 Bcf/d, while Power demand increased by 0.76 Bcf/d and Industrial demand fell 0.38 Bcf/d. LNG exports were flat on the week, while Mexican exports increased by 0.41 Bcf/d. These events left the totals for the week with the market dropping 0.93 Bcf/d in total supply while total demand fell by 3.03 Bcf/d.
- The storage report last week showed the injections for the previous week at 92 Bcf. Total inventories are now 55 Bcf higher than last year’s and 369 Bcf below the five-year average.
- The CFTC report (as of April 23) showed the Managed Money long sector reducing positions by 3,856 contracts, while the Managed Money short position substantially increased, gaining 28,570 contracts. These additional increases in the short positions occurred when prices broke below the three-year support area at $2.522.
- The expiration of the May contract conformed to the tendency of contract expirations for over two years (excluding April 2019), with a rally into expiration and prices trading between $2.439 and $2.580. Even with that brief rally, the market internals maintain a bearish to neutral bias for the week. Volume declined from the previous week and open interest declined with the expiration, which is a normal tendency. With the bounce-off of support, the market has softened from the over-sold momentum levels.
- The market clearly rebuffed the potential expiration below the long-term support area at $2.522, instead choosing to expire at $2.566, just below the highs of the week. The rally off the lows left a bullish weekly reversal. The June contract followed the trend, reversing from the lows of the contract’s history at $2.477. While the May and June contracts traded to new lows last week, the 12-month running strip and winter 2019-2020 strips did not reach new lows, suggesting that the market is in the process of rejecting significantly lower prices. The seasonal expectation for the near term (early summer) is supportive for a price rebound. After last week’s reversal, the June contract should test resistance between $2.653 and $2.695 before June’s expiration. Should the bears regain control of the bias, last week’s June low at $2.477, followed by the low of last week at $2.439, should find buyers.
NATURAL GAS LIQUIDS
- Plans have been announced by Energy Storage Ventures and Appalachia Development Group to create new ethane storage facilities in Appalachia. These storage facilities are viewed as crucial for the area. As ethane production in the area continues to grow, storage facilities could help bring development of new petrochemical facilities in the area, taking advantage of low-priced ethane as a feedstock.
- Prices were up across the board week over week. Ethane gained $0.008 to $0.235, with propane up $0.031 to $0.643, normal butane up $0.023 to $0.770, iso-butane up $0.021 to $0.768, and natural gasoline up $0.031 to $1.341.
- US propane stocks increased ~1.0 MMBbl the week ending April 19. Stocks now sit at 57.8 MMBbl, roughly 22.1 MMBbl and 18.1 MMBbl higher than the same week for April 2018 and April 2017, respectively.
- Waterborne crude imports to the US jumped last week with increases across PADDs 1, 3, and 5. DrillingInfo’s tracking of these waterborne imports from customs manifests shows that overall imports nearly reached 4 MMBbl/d. The 3.994 MMBbl/d of imports was the highest level since the week ending February 15. PADD 3 imports rose to 2.2 MMBbl/d, the highest since that same week in February when imports reached 2.5 MMBbl/d. The increase in PADD 3 imports was driven by higher than normal levels of imports from both Russia and Colombia, as well as imports from Kuwait. The LOOP terminal was active, receiving cargoes from Mexico, Iraq, and Kuwait.
- Imports from Colombia have increased recently, with monthly imports into PADD 3 on pace to be the highest since the beginning of 2017. We are also seeing Russian Urals crude arrive more frequently, and these imports are consistently going to Phillips 66 Lake Charles.
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