Enverus Blog

Insights across the energy value chain

CRUDE OIL

  • US crude oil inventories decreased by 5.9 MMBbl, according to the weekly EIA report. Gasoline and distillate inventories increased 3.3 MMBbl and 2.7 MMBbl, respectively. Total petroleum inventories showed a slight 0.2 MMBbl build. US production remained unchanged. Crude oil imports were down 143 MBbl/d, to an average of 8.2 MMBbl/d versus the week prior.
  • The WTI market settled into a range early last week, waiting for news from the OPEC meeting in Vienna regarding the volume that may come back on the market and the associated timing. Russia had been supporting a 1.5 MMBbl/d quota easement, while the Saudis were content with 0.6-1.0 MMBbl/d. Some OPEC members had argued for not bringing any oil back to the market. In the end, OPEC decided to raise output but did not specify how much or by whom. However, this gives Saudi Arabia the ability to respond to any issues arising from US and allies’ sanctions on Iran or additional losses from Venezuela. Delegates were quoted as stating that 700 MBbl/d may come back on the market from OPEC and non-OPEC producers. Russia will likely raise output as much as it can, and Saudi Arabia will manage its output with price movements. The Saudis have long sought prices between $70 and $80/Bbl for the upcoming IPO of Saudi Aramco.
  • The release of the details didn’t have much impact on price, as the quota easement was already baked into prices. However, other news sent prices higher on the week. Recent attacks on Libya’s Ras Lanuf port have lowered storage capacity by 400 MBbl and production by 240 MBbl/d. Additionally, tariff tensions continued with China as President Trump announced the US may impose an additional $200 billion or more in tariffs on Chinese goods. China has clearly stated that it will have no choice but to take its own measures in response.
  • According to the latest CFTC release, the managed-money long positions decreased by 1,812 contracts and shorts decreased by 7,208 contracts. The expectations for declines in open interest suggest some short covering by the speculators. WTI had stayed in a $3/Bbl range for the week, breaking for a lower low ($63.59/Bbl) before rebounding and racing to the highs of the week on Friday ($69.38/Bbl), and settled the week at $68.58/Bbl. This action left prices above all the commonly watched averages. The gain on strong volume implies the strength of the run on Friday will extend into trade early this week, perhaps taking prices to $71/Bbl. Until the market can understand what the quota easement will likely mean for fundamentals, WTI will remain very volatile.
  • Eventually, after the volatility recedes and consolidation commences, prices will settle in a range between $58 and $65/Bbl. The quota easement and continued US growth lead Drillinginfo to believe that the supply and demand for crude may force a retracement of prices to the range between $58 and $61/Bbl.

NATURAL GAS

  • Natural gas dry production increased last week, rising 0.71 Bcf/d and setting a weekly record high at 80.3 Bcf/d. The Northeast (+0.16 Bcf/d) and Southeast (+0.18 Bcf/d) regions also set record high production levels last week. Additionally, Rockies (+0.2 Bcf/d) production contributed to the weekly US gain, as volumes from maintenance during the prior week returned. Canadian imports also increased by 0.25 Bcf/d to meet incremental cooling demand.
  • US power demand increased by 3.16 Bcf/d week-on-week, while Res/Com decreased by 0.49 Bcf/d, and industrial demand also declined by 0.14 Bcf/d. LNG exports gained 0.39 Bcf/d on average for the week, and Mexican exports were down 0.18 Bcf/d. These events left the market gaining 0.96 Bcf/d in total supply, while total demand was up 3.02 Bcf/d.
  • The storage report last week came in above expectations with an injection of 91 Bcf. This was the second storage report that came in with a bearish bias only to have the price action reject the declines and close higher on the day. That injection is likely to be the last one to hit 90 until late summer or early fall without the benefit of additional production. Eventually the market will have to address the comfort level going into the winter with 3.6 Tcf in storage, because it is becoming a remote possibility that injections will end up at last year’s levels.
  • Prices started the week off with a bang, trading to a new high on Monday (Sunday night actually), then promptly proceeded to trade down and test the well-defined support, which has held the trade all month at $2.875. From there, prices rallied but fell short of the early-week high. Average daily volume and open interest both declined last week as traders have stepped to the sidelines waiting for some confirmation from the data regarding production (growth) and weather forecasts for July and August, which have been contradictory from day to day.
  • When prices broke above the major resistance in the previous week, there was some short covering as the latest CFTC report (dated June 19) showed the managed-money short positions decreasing by 4,989 contracts, while the managed-money long positions took profits as prices rose early in the week, reducing positions by 8,911 contracts.
  • The market is clearly in limbo as traders are waiting for decisive information regarding supply and demand during the upcoming summer months and how those fundamentals will play out longer term going into winter. Since March, the range each month has been consistent, with March’s range at $0.25, April’s at $0.22, and May’s at $0.29, and now June has been at $0.18, with each month reaching a higher high. The trade this month may be running out of buyers as we head into expiration, but it needs to be remembered that in 17 of the past 18 months, the expiration process has had gains during expiration, most often on the day of expiration but clearly during the process.

NGLs

Announcements

  • Mariner East 2 was issued its 59th violation after spilling 50 gallons of drilling fluid last week.
  • Caliche Development Partners is expanding its NGL salt dome cavern storage facility in Beaumont, Texas. The new capacity includes 5 MMBbl of storage and 120,000 of Bbl/d deliverability.
  • After Trump’s announcement of a 25% tariff on $50 billion of exports and threat of another $200 billion more, China Energy canceled its trip to West Virginia to meet with the West Virginia Energy Institute. The company recently signed a memorandum of understanding, as it was contemplating a potential $250 billion investment in a gas and NGLs storage hub or power plant in the state. The announcement will put a hold on the due diligence of the project.

Propane

  • Inventories this past week reported a build of 3.2 MMBbl in last week’s EIA report. Propane stocks now sit at 54 MMBbl, approximately 1.3 higher than this time last year and 7.5 MMBbl lower than the five-year average.

The Week Ahead For Crude Oil, Gas and NGLs Markets – 06/25/2018

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