The Week Ahead For Crude Oil, Gas and NGLs Markets 01-30-17

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4Q2016 earnings calls season: six major E&P companies will be releasing their final full year 2016 earning calls this week. Consol and Exxon on Tuesday (1/31), Anadarko on Wednesday (2/1), EQT and ConocoPhillips on Thursday (2/2) and National Fuel on Friday (2/3). DI expects increases in capital expenditures (CapEx) in 2017 and therefore increases in 2017 production from 2016 levels as prices have recovered from lows seen in 2016. Releases will continue throughout the month of February and updated Short-term (Producer-level) forecast will be available by Mid-March.

CRUDE OIL

  • Crude oil inventories increased by 2.8 MMBbl last week according to the EIA. Gasoline inventories increased by 6.8 MMBbl and distillate inventories increased 0.1 MMBbl. Although imports were down 568 MBbl/d this week, imports have averaged 8.1 MMBbl/d over the last four weeks (4.3% higher than the same period last year). Higher imports have played a large part in the rising crude stocks over the last three weeks. This week, the lower imports were not enough to offset lower refinery runs (down 421 MBbl/d) and lower product supplied (down 2 MMBbl/d), leading to a significant build in total commercial petroleum inventories of 8.9 MMBbl. The petroleum stocks report was bearish, as all inventory categories except for propane posted a build last week.
  • Both bullish and bearish factors were at play last week, but none helped WTI break out of its $50-$55/Bbl range.
    Bullish: Following the meeting of the quota compliance committee last weekend, OPEC and non-OPEC ministers echoed that 1.5 MMBbl/d of the agreed upon 1.8 MMBbl/d had been cut.
    Bullish: Production at the North Sea Buzzard field was down 20 MBbl/d due to a ‘technical glitch.’ The field is the largest contributor of the Forties stream, a part of the Brent benchmark.
    Bearish: Libya’s crude oil production has risen to 700 MBbl/d from 300 MBbl/d in September. Libya’s NOC said this week that the moratorium on foreign investment is set to be lifted for the oil sector and that the goal is to reach 1.25 MMBbl/d of production by the end of 2017 and 1.6 MMBbl/d by 2022.
    Bearish: Iran’s crude oil exports are set to rise to 2.20 MMBbl/d in February from 2.16 MMBbl/d the prior month.
    Bearish: Total petroleum inventory levels posted a significant build last week, with crude oil and all refined products except propane posting a build last week.
    Bearish: BHI reported that 18 more rigs were added to the fleet last week. The steadily rising rig count continues to fuel worries that US production growth could counteract some of the production cuts by OPEC.
  • The production cuts continue to shore up prices and speculative long positions are at very high levels following comments by oil ministers after the quota compliance committee’s meeting last weekend. The bullish comments seemed to be priced in, however, as they were not enough to break WTI through the higher end of the range. Analysts still expect only partial compliance with quotas and only third party reporting is going to confirm or deny the success of the cuts. Additionally, the prospects of US production growth and growing Libyan production are already working to counteract any cuts ahead of refinery maintenance season. Fundamental supply data from third parties that can push WTI out of the range is expected in mid-February (Feb. 10 from the IEA). Until then, expect continued volatility within the established $50-$55/Bbl range.
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    NATURAL GAS

  • Natural gas production increased 270 MMcf/d, continuing gains from the previous week. However, current production remains below 71 Bcf/d and is significantly lower than the high observed in early 2016. With the warming temperatures and reduced demand, Canadian supplies declined 280 MMcf/d this week, leaving the total supply for the week flat to the previous week.
  • On the demand side, the recent warming temps in the East and Atlantic Coast continued last week and caused Res/Com levels to decline 700 MMcf/d on average week-on-week. Power demand for the week increased 340MMcf/d from the previous week, compensating some of the Res/Com losses. LNG exports remained strong at 1.93 Bcf/d as commissioning of Train 3 continued at Sabine Pass. Demand will increase in the coming week with temperatures returning to normal or below-normal in high population centers.
  • The storage report last week came in near expectations at a 119 Bcf withdrawal. With the warmer temperatures last week, this week’s withdrawal number release should be well under the 5-year average in the 80-90 Bcf range.
  • For the third time in the last six weeks, prices moved higher after opening the week lower. Last week’s movement was in spite of the weak demand observed during the week. The expiring Feb contract managed to catch bids that sent prices up to $3.49 MMBtu before retracing on the day before expiration. It is becoming evident that price action has a well-defined support at $3.10 and resistance from the high set on Jan 3rd at $3.568. Should weather forecasts for February warm significantly, then traders will feel more secure about ending inventories in March. Without a warm February, upward pressures on prices should prevail as it becomes clear that the current supply level cannot meet demand and support summer injections necessary for next winter. DrillingInfo continues to call for a rise in prices to facilitate additional investment in gas-directed drilling.
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    NGLS

  • Propane inventories decreased 4.0 MMBbl in last week’s EIA report, marking a ninth consecutive withdrawal seen this season. This week’s withdrawal is back to normal levels compared to last week, which had the highest withdrawal in history. Warmer weather, along with steady propane production from refiners, has restored withdrawals to normal levels. Propane stocks now sit at 68.2 MMBbl, roughly 15.5 MMBbl lower than this time last year. However, propane stocks are still well above the five-year average of 45.1 MMBbl for this time of year prior to 2015 (before the price crash).
  • Ethane: Prices plummeted on Monday, decreasing 18% to a low that we haven’t seen since August 2016. The drop is likely a result of high inventories and export delays. Enterprise conducted a week-long maintenance at Morgan’s Point ethane export terminal last week, which likely contributed to the drop.
  • Propane: Propane prices continued to rise this week due to colder weather seen in the 10-16 day forecast.
  • Butanes: For the first time since the beginning of December, normal butane prices finally fell below isobutane prices, falling in line with expectations.
  • Natural Gasoline: Mt. Belvieu prices have been highly volatile this week, dropping 21% from Friday’s close to Monday’s close and marking the lowest natural gasoline price seen since March 2016. This substantial drop is likely due to high inventories and falling gasoline prices. The price of gasoline has dropped as large stock builds have materialized over the last four weeks, making natural gasoline in refineries less valuable. Towards the middle of the week, natural gasoline prices posted some gains but not enough to fully rebound from the drop on Monday. Friday, however, prices took a dive once again. The significant drop seen this week sent prices below normal butane and isobutane, throwing the stack out of order once again.
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