- US crude oil inventories decreased by 4.1 MMBbl, according to the weekly EIA report. Gasoline and distillate inventories decreased by 2.3 MMBbl and 2.1 MMBbl, respectively. Total petroleum inventories showed a decrease of 1.8 MMBbl. US production was estimated to be up 100 MBbl/d. Crude oil imports were down by 247 MBbl/d to an average of 8.1 MMBbl/d versus the week prior.
- The WTI market continues to show cracks in the one-year rally, as both OPEC and Russia reported higher production levels for May. According to OPEC’s monthly report, the group increased production approximately 35 MBbl/d, primarily attributable to Saudi Arabia. The growth offset the declines from Nigeria, Libya, and Venezuela. The increases from Saudi Arabia and Russia coming before the OPEC meeting on June 22 in Vienna signal the expectation to restore production, but not all members agree with the theory. Iraq Minister of Oil Jabbar al-Luaibi stated prices still require support and stability, which sent a mixed message to the market. He added that unilateral decisions by some OPEC members risk violating the production-cutting agreement. On Friday, the Russians suggested that production be lifted by 1.5 MBbl/d, approximately the same amount the International Energy Agency expects to leave the market as economic and political issues grip Venezuela and Iran. Saudi Arabia is looking at different ideas that would raise production 0.5 MBbl/d to 1 MBbl/d.
- The uncertainties regarding the timing and amount of production coming back into the market were evidence of the week’s volatile price movements as the recent range was tested in support and resistance. The movement also allowed speculative traders to increase their positions, but without longer-term confidence, position changes were minor. According to the latest CFTC release (dated June 12), the managed-money long positions increased by 9,975 contracts. The report also showed another increase in the managed-money short sector, which increased its position by 5,684 contracts. These types of limited additions in the speculative positions will likely continue until the market becomes comfortable with the expectations for and outcome of the upcoming meeting.
- Prices did have a mild rally early in the week and held most of the gains after the inventory data release. The comments from Russia on Friday eliminated the gains of the week, sending prices down to the lows of the previous week before finding support but still closing the week lower for the fourth consecutive week. The combination of the Vienna meeting and the continuing talk of tariff issues may pressure prices, extending below the recent $3.00 range ($64.29-$67.34). Should prices break below the recent lows, then the market will likely retract to the April low of $61.81. Any rally because of the meeting outcome will find stout resistance around $67-$67.34 this week. One given element for trade this week will be the likely increase in volatility.
- After the upcoming volatility and trade around the OPEC meeting settles into the market, a consolidation period will bring a pause to the trade. Despite the movement in the WTI, the large spread between WTI and Brent continues and will provide additional opportunities for US producers overseas. With the continued growth in US production and the addition of drilling rigs, Drillinginfo believes the supply and demand for crude may force an eventual retracement of prices down to $55, especially with the potential for tariff issues to have an impact on world demand.
- Natural gas dry production declined last week, losing 0.21 Bcf/d. Canadian imports increased 0.20 Bcf/d, offsetting recent declines associated with the utilization of the Rover Phase II project.
- On the week, US power demand increased 1.35 Bcf/d, res/com decreased by 0.81 Bcf/d, and industrial demand declined by 0.16 Bcf/d. LNG exports gained 0.23 Bcf/d on average for the week, and Mexican exports were also up 0.07 Bcf/d. Totals for the week showed the market gaining 0.09 Bcf/d in total supply, while total demand was up 0.74 Bcf/d.
- The storage report last week came in about on expectations with an injection of 96 Bcf. This injection exceeded the five-year average but did not persuade the price action, which is looking for confirmation that production will be able to replenish inventory. In fact, after declining on the release, prices rallied throughout the day.
- Prices, which traded in a narrow range the week prior, tested $3.00 for the first time since the collapse of the late January rally. This run occurred with higher average daily volume and left July in backwardation relative to August and September. This represents a bullish sentiment.
- Last week’s break above resistance occurred before the release of the latest CFTC report (dated June 12). The CFTC report showed the managed-money short positions decreasing by 7,725 contracts and the managed-money long positions reducing by 9,750 contracts. Judging from the higher volume and declining open interest early in the week (short covering), expect a shift in the positions in next week’s report.
- Last week’s gains mark eight of the past 11 years in which prices have rallied during the second week of June. At the same time, price is now two standard deviations above the commonly watched 20-week moving average. This may be a signal that the market is overextended. With the close in the middle of the range of highs on strong volume, expect additional gains early this week followed by a retracement before the expiration process begins next week. For the past 18 months, prices have strengthened at some point during the expiration process.
- The Pennsylvania Utilities Commission issued orders to allow Mariner East I to resume operations. However, it reaffirmed its decision to halt ME2 and 2X construction in West Whiteland Township. Pennsylvania state Senator Andy Dinniman continues to push the PUC and disagrees with the decision to resume the operations of what he thinks is the biggest threat to constituents.
- Mont Belvieu ethane prices hit a four-year high on June 13, just above 33 cents per gallon ($2.10 frac spread), stemming from record ethane exports. The backwardation curve shows speculation on potential ethane or ethylene oversupply, with prices this time next year at 28 cents per gallon.
- Targa NGL Pipeline Company announced an open season for NGL firm transportation from their plants in Coal and Hughes counties in Oklahoma to Mont Belvieu, Texas.
- Inventories this past week reported a build of 3.7 MMBbl in last week’s EIA report released June 6. Propane stocks now sit at 50.8 MMBbl, approximately 0.4 MMBbl higher than at this time last year and 8.3 MMBbl lower than the five-year average.