- US crude oil inventories decreased 3.6 MMBbl, according to the weekly EIA report. Gasoline and distillate inventories increased 0.5 MMBbl and 0.6 MMBbl respectively. Total petroleum inventories increased 1.8 MMBbl. US production was estimated to be up 44 MBbl/d. Crude oil imports declined 528 MBbl/d to an average of 7.6 MMBbl/d versus the week prior.
- The WTI trade found a bid on Wednesday after prices declined to the lows from mid-April at $65.56/Bbl. However, a build in total petroleum inventories and the lingering news that Saudi Arabia, Russia, and other OPEC countries would restore as much as 1.0 MMBbl/d to ease global supply concerns is still moving the market. Saudi energy minister Khalid Al-Falih said OPEC and Russia would supply more oil to offset the sharp declines from Venezuela and the potential impact from US sanctions on Iranian supply. The question regarding timing is still unanswered, however. Some reports have the current quotas staying in place until the end of the year, which may provide near term support for prices. Both Saudi Arabia and Russia signaled that the fate of the curbs will be addressed at the upcoming OPEC meeting in Vienna on June 22nd.
- As discussed, prices continued their capitulation early in the week as traders liquidated length at a rapid pace. According to the latest CFTC release the managed money long positions declined 34,798 contracts or 9.1% of open positions. This selling was met with new short selling by the managed money short sector, which increased 18,496 contracts. The chart below brings into perspective the liquidation that has occurred from the speculative sector as it has reduced positions by over 100,000 contracts in just the last four weeks. Brief rallies, like the one occurring on Wednesday, will likely be met with additional liquidation.
- The declines extending into the late Friday trade is contrary to recent history of prices rallying into the weekend and sets the market up for weakness on the open this week, short of any supportive news. Closing the week near the lows has the market approaching short term over-sold indicators and prices are starting to test a support area around the commonly watched 20-week moving average ($65.36/Bbl). Eventually, the market will settle into a new range (or a consolidation period) and whether the low end of the range is at the early April lows ($61.80-$62.00/Bbl) or higher remains to be defined. Last week’s high ($68.67/Bbl) will likely be near the top of the new range. Market internals have a negative bias as the declines have been accompanied with higher volume. Total open interest has declined with the liquidation of speculative length.
- Prices will remain volatile as the market continues to monitor the quota decision, Venezuelan declines, impact of Iranian sanctions, demand trends, and growing US production. When this volatility subsides, the market will inevitably trade to a range reflecting the fundamentals. Currently, the large spread between WTI and Brent supports additional US growth. Should OPEC reinstate 1 MMBbl/d of production, Drillinginfo believes a retracement back to $55/Bbl could become a reality in the longer term. In the short-term, expect prices to test the bottom of the current range noted above.
- Natural gas dry production declined last week, losing 0.16 Bcf/d. Canadian imports increased 0.08 Bcf/d.
- US power demand increased by 1.44 Bcf/d week-on-week, while Res/Com declined by 1.29 Bcf/d, and industrial demand also fell by 0.19 Bcf/d. LNG exports rose slightly by .01 Bcf/d on average for the week, and Mexican Exports were down 0.04 Bcf/d on the week. Totals for the week showed the market dropping 0.09 Bcf/d in total supply while total demand was down 0.01 Bcf/d.
- The storage report last week came in well-below expectation, with an injection of 96 Bcf. While this injection was above historical comparisons, the market was expecting the second triple-digit injection of the season. The injection 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 may get a chance at a second triple-digit injection this week, but with power demand strong and temperatures starting to climb (later in June), the market will have to see some well-above average injections quickly.
- Price behavior followed expectations with a test of the breakout zone from the previous week, now establishing a solid support zone at the commonly watched 200-day moving average ($2.875). A rebound off that level left prices ready to test $3.00 this week. Market internals continue to support the positive bias, with volume remaining strong and open interest gains during a holiday-shortened week.
- The market participants did little to impact prices, as the latest CFTC report (dated May 29) showed the Managed Money short positions increasing slightly by 1,806 contracts and the Managed Money long positions declining 7,301 contracts during the expiration of the June contract.
- History shows that the prices trade to a seasonal high. Over the past 12 years prices have traded over the April high in 11 years, and extended to a later seasonal, late spring/early summer high three times during June and three times during July. It is very likely that prices will continue with a positive bias as the market needs to digest the current production versus the higher power demand and the recent forecasts.
- NGL energy partners sold its remaining Retail Propane business for $900 million. The company is shifting focus to their water solutions and Crude Logistics business. The sale was in addition to other recent sales of their propane business, collectively totaling $1.1B and sold for over a 10x multiple.
- Shell’s Falcon Ethane Pipeline is receiving objections from local environmental groups after their recent water permit approval request to the Ohio EPA. The groups state that Shells filing lacks required due diligence and information on proactive plans to avoid horizontal directional drilling errors. The state has gone through recent pipeline issues with Energy Transfer’s Rover Pipeline and hopes not to have similar issues with Shell. The project provides ethane feedstock to Shell’s Ethane Cracker in Monaca, PA, and plans to begin construction in 2019.
- Inventories this past week reported a build of 2.0 MMBbl in last week’s EIA report. Propane stocks now sit at 41.1 MMBbl, roughly 0.6 MMBbl lower than this time last year and 11.4 MMBbl lower than the 5-year average.