- US crude oil inventories decreased by 1.9 MMBbl, according to the weekly EIA report. Gasoline inventories remained unchanged while distillates increased 0.3 MMBbl. Total petroleum inventories remained unchanged. US production was estimated to be up 13 MBbl/d and imports decreased 25 MBbl/d to an average of 7.9 MMBbl/d versus the week prior.
- Prices softened early in the short week, but found support due to the bullish expectations of a quota extension at the upcoming OPEC meeting in Vienna (Nov 30th). The market’s bullish bias was also supported with news that the Keystone Pipeline is cutting deliveries at least 85% through the end of November due to the leak in South Dakota. Production declines and the situation on the ground in Venezuela also introduced additional bullish bias. Even with the run up in prices, the market is starting to focus on potential issues to the WTI price run carrying beyond $60/Bbl for an extended period. Some skepticism around Russia’s willingness to join the possible extension and rising Iraqi crude production has provided traders a reason for pause. Iraq crude exports rose to record highs in November (150 MBbl/d higher than October).
- To a large extent, much of the last seven weeks’ price gains has been fueled by the speculative trade which has concentrated on the geopolitical issues and OPEC meeting with expectations of higher prices. Price runs that are based solely upon speculation are subject to abrupt correction when the focus shifts back to fundamentals. Last week’s gains took prices to the highest weekly close since June 2015, leaving the market in an extreme overbought position. The upward extension was likely the result of additional speculation in a lower volume environment (short holiday week). However, this will not be confirmed until the CFTC releases its data later today.
- It is evident that speculators are targeting $60/Bbl. However, where prices go next can turn ugly when there are so many bets in one direction that are not supported with sound fundamentals to keep trade there sustainably. The speculative sector will start taking gains at some point and additional selling is expected from US producers hedging 2018 production. The combination of these two market sectors selling simultaneously will likely push prices back into Drillinginfo’s expected range between $52-$56 for the near term.
- Natural gas dry production gained 80 MMcf/d on average compared to the week before. Dry production during November continues to maintain a tight range on either side of 76 Bcf/d, however, last week had several strong days over 76.5 Bcf/d during the holiday weekend. Canadian imports were down, falling 390 MMcf/d.
- On the demand side, res/com demand declined 500 MMcf/d as temperatures came in warmer. Power demand fell 1.27 Bcf/d on average for the week from a combination of moderate temperatures and the extended holiday weekend. Industrial demand continued its recent gains rising 310 MMcf/d. LNG exports were up 270 MMcf/d, returning to recent normal levels around 3 Bcf/day. Mexico exports rose 70 Mcf/d leaving total demand down 1.27 Bcf/d while total supply was down 320 MMcf/d.
- The storage report last week came with a slightly lower withdrawal than expected at 46 Bcf. Prices declined and closed the gap from the first week in November. The next two reports releases should be additional withdrawals but below last year’s withdrawal and the 5-year average withdrawal.
- Prices started the week falling and continued that trend through the week gaining acceleration on the lighter Holiday trade toward the end of the week. The declines traded below $2.80 briefly on Friday’s shortened trade day. Similar in behavior to the expiration of the Nov contract, the weakness has likely established the low end of the Dec contract expiration.
- Last week’s declines were likely the result of moderating forecast changes by some of the models all through the week. With the data release from the CFTC being delayed until today, it is hard to decipher whether the selling was directed by new shorts entering the market or to liquidation of existing length. Total open interest increased substantially during the week (Friday’s gain was over 33,000 contracts), suggesting the selling was from additional shorts entering the trade.
- As discussed last week, volatility did increase significantly with the shortened holiday week. However, the longer-term forecasts will continue to direct price action as the January contract takes over as prompt. Some of the longer-term forecasts are moderating the temperatures downward and increasing demand. If this trend continues and additional shorts entered the market last week, this could create a very volatile week for trade.
- Ethane prices fell over the long holiday weekend due to the drop in natural gas prices. Moving forward winter weather will be the main driver of natural gas prices, which will in turn affect ethane prices.
- Inventories decreased almost 1 MMBbl in last week’s EIA report. Propane stocks now sit at 73.7 MMBbl, roughly 29 MMBbl lower than this time last year. However, propane stocks are still above the five-year average of 67.2 MMBbl for this time of year prior to 2015 (before the crude price crash).
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