- US crude oil inventories decreased 5.8 MMBbl, according to the weekly EIA report. Gasoline inventories increased 1.9 MMBbl, while distillates declined 1.0 MMBbl. Total petroleum inventories showed a sizable 6.7 MMBbl build. US production was estimated to be up 2 MBbl/d (lower 48 increased 24 MBbl/d, Alaska declined 22 MBbl/d). Crude oil imports increased 558 MBbl/d to an average of 8.2 MMBbl/d versus the week prior.
- The WTI trade has been bullish on Iranian sanctions, continuing Venezuelan declines, and the geopolitical unrest in the Middle East. That continued early last week until the storage report was released on Wednesday. The sizable gains in crude inventories and, more important, total petroleum stocks provided a WTI ceiling for the market just under $73/Bbl as Brent topped out over $80/Bbl. When it was announced that Saudi Arabia and Russia would restore some output, the market endured a hardened fall. Though Russia and the Saudis signaled the restoration, potential opposition from several producers could burden the group’s ability to come to a consensus at the Vienna meeting scheduled next month.
- Prices collapsed on Friday, falling $2.83/Bbl and closing at $67.88/Bbl, the largest loss since last July. The losses continued yesterday, declining another $1.30/Bbl (the crude market does not settle on Memorial Day; rather, the prices are rolled into Tuesday). The declines were met with substantial volume and an expected decline in total open interest (data lags by a day) as traders liquidated length on the reports. Prior to the collapse, participants continued to reduce risk as the latest CFTC release showed that the managed money long positions declined 20,265 contracts. This has been a trend for the last few weeks, as discussed here previously, and the effects from the quota-relaxing rumors will further exacerbate the trend and liquidation in this week’s CFTC data.
- The recent declines have taken prices below the key area of support around $66.66/Bbl (during the rally, this was long-term resistance). However, having declined 7% in just two days, prices are approaching short-term oversold levels. Crude trade has a history of overshooting the moves to both the upside and downside, so look for extensions lower over the long term that may take the prompt between $60/Bbl and $63/Bbl. Those levels will require prices to break the commonly watched 20-week moving average ($65.40/Bbl). Prices have traded above or at this moving average since July 2017, and should the market break below it when tested, additional declines will commence, possibly down to $60/Bbl. The market will continue to digest the potential of higher output from OPEC and Russia and the continued growth from the US. Offsetting those price pressures will be the effects from Iranian sanctions and continued Venezuelan production declines. It is becoming clear that additional volatility will be introduced into the market in the coming weeks as the participants define the new trading range.
- When this volatility subsides, Drillinginfo expects prices to trade around $65/Bbl. This price level reflects the fundamentals of the market with growing US production, demand limitations (due to higher prices), and the impact of Iranian sanctions and Venezuelan declines.
- Natural gas dry production increased last week, gaining 0.85 Bcf/d. The recent maintenance issues on some pipelines ended and allowed for more production to reach the market. Canadian imports also rose 0.14 Bcf/d.
- US power demand increased 0.20 Bcf/d week-on-week, while Res/Com declined 0.26 Bcf/d, and industrial demand also fell slightly by 0.03 Bcf/d. LNG exports fell 0.48 Bcf/d on average for the week and Mexican exports were flat. Totals for the week showed the market gaining 0.98 Bcf/d in total supply, while total demand was down 0.58 Bcf/d.
- The storage report last week came in very close to expectations at an injection of 91 Bcf. This was above the required average (90) that needs to be injected every week between now and October to meet last year’s levels. The market should get a good indication this week of the potential peak injection levels in the coming three weeks before forecasts have summer temperatures taking over in the plains and Texas. The market will also receive direction from potential production that will be coming into the market with the completion of the Rover Pipeline project on June 1.
- Prices broke through the commonly watched 200-day moving average ($2.875), and the breakout was confirmed with higher volume and open interest gains. Prices had not traded above that average since the late January rally that extended prices to $3.661. While this breakout does move the bias to distinctively bullish for now, the key average may need to be tested as support in order to confirm the general bias change longer term. The day the breakout occurred happened to coincide with the CFTC report (dated May 22), which confirmed a significant shift in positions as the Managed Money short positions were reduced by 21,453 contracts and the Managed Money long positions rose by 21,152 contracts.
- The natural gas market will be going through an evaluation phase over the coming weeks, as it will analyze the current production levels with the upcoming summer demand. While it is known that production is very near record levels currently, the market is keenly aware that the summer demand is going to bring pressure to refilling storage adequately by November. Prices will seek out pieces of information each week to confirm either bias. This will set the stage for volatility in either direction as the evaluation continues.
- Sunoco was ordered to suspend flow on Mariner East 1 and halt construction on Mariner East 2 on May 24. In the order, Judge Elizabeth Barnes from the Pennsylvania Public Utility Commission said that Sunoco deliberately prioritized profit over safety in recent rushed decisions. Sunoco must now complete almost a dozen orders relating to the safety and integrity of ME1 and other technical studies of the ME2 route.
- The EIA’s comment period about whether it should collect information from NGL processing plants is ending on June 4. The company is planning to create Form EIA-806, the “Weekly Natural Gas Liquids Report,” which will “improve accuracy of weekly data for both petroleum demand and propane production from natural gas processing plants,” according to the EIA.
- Construction of an ethylene export terminal at Enterprise Products Partners’ Morgan’s Point facility is now underway. The facility is a 50/50 joint venture between Enterprise Products Partners and Navigator Holdings, and will be capable of exporting about 2.2 billion pounds of ethylene per year. The terminal should support the growth in ethylene production in the US after operations begin in Q4’19.
- Inventories this past week reported a build of 0.7 MMBbl in last week’s EIA report. Propane stocks now sit at 41.1 MMBbl, roughly 1.1 MMBbl lower than this time last year and 11.6 MMBbl lower than the 5-year average.
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