- US crude oil inventories decreased by 12.6 MMBbl, according to the weekly EIA report. Gasoline inventories decreased by 0.7 MMBbl, and distillates increased 4.1 MMBbl. Total petroleum inventories showed a large withdrawal of 7.2 MMBbl. US production was estimated to be up 29 MBbl/d on the week. Crude oil imports were down 1.6 MMBbl/d to an average of 7.4 MMBbl/d versus the week prior.
- The WTI market continued its bullish bias early in the week, rising back above $74 on the similar news that closed out the week prior: (1) concerns about whether the increase in output from OPEC was going to be able to offset the losses from the continuing short-term declines in output from Libya (declining from 1.28 MMBbl/d to 500 MBbl/d) and the Canadian oil sands; (2) the longer-term declines from Venezuela; and (3) impact of the restored ban on Iranian imports by the US and our allies. These concerns, which have been supporting the recent price advance, received some updates as the week went on; Libya’s state-run National Oil Corp. announced a potential 700 MBbl/d of oil flowing back into the world market, and a potential softening from Washington raised the possibility that allies could buy some Iranian crude despite the reintroduction of sanctions.
- In addition to the factors above, escalating US-China trade tensions increased the worries of global demand growth, as the Chinese revealed the lowest crude imports into the country since December. These elements, along with the increases in Saudi and Russian production and continuously increasing US production, turned out to be too much for the bulls to overcome and forced some weakness during the latter half of the week, taking prices below $70 ($69.23), which then bounced to close the week at $70.58.
- As discussed last week, the gains in prices just before the holiday were spurred by a significant increase in the managed-money long position, as identified in the delayed release of the CFTC reports. The CFTC report dated July 3 showed a significant gain of 47,854 contracts in the managed-money long position. The CFTC report dated July 10 revealed a slight gain in positions of 1,185 contracts. During the collapse in prices at the end of the week, the separation between August and September dropped dramatically, but it is still trading at a large $1.06 premium for the August contract. Expect a decline in the managed-money length with the price declines at the end of the week. With this adjustment to the spread, the previously discussed potential of a “blow off top” type of event has been mitigated.
- With prices for WTI reversing off the early strength, especially declining with the release of a very bullish inventory report, the high end of the current trade range has likely been established at the recent high ($75.27). The low side of the new range is likely last week’s low, down to the late June lows around $67. With all the news issues spinning around in the market, price action will continue to be volatile, similar to what it was last week. Eventually, after the volatility recedes and consolidation commences, current events and continued US growth may force a retracement of prices into a zone between $60 and $65.
- Natural gas dry production decreased by 0.44 Bcf/d, falling below the record-high 81 Bcf/d production of the previous week. The declines were spread across all regions, with the one exception being the Gulf. Canadian imports decreased 0.31 Bcf/d.
- The US power demand declined 0.91 Bcf/d on the week, while Res/Com increased 0.62 Bcf/d and industrial demand increased 0.12 Bcf/d. LNG exports declined slightly, falling 0.21 Bcf/d on average, and Mexican exports gained 0.16 Bcf/d on the week. These events left the totals for the week showing the market losing 0.75 Bcf/d in total supply, while total demand was down 0.26 Bcf/d.
- The storage report last week came within expectations, with an injection of 51 Bcf. The initial response had a bearish bias on the release and held prices down for the rest of the day. With the heat two weeks ago, this could possibly be the lowest injection of the season. The coming week’s injection is expected to be higher than last week’s.
- Prices opened the week testing resistance around the commonly watched 200-day moving average ($2.875), only to succumb to the bearish bias from the previous week. The CFTC report dated July 3, which was delayed until last Monday, had the managed-money long positions liquidating 23,968 contracts; the CFTC report dated July 10 had the managed-money long positions liquidating another 14,513 contracts. While this liquidation was occurring, the managed-money short positions increased by 43,111 contracts over the two reports (over 40%). This position modification of average daily volume and slight gains in total open interest suggest that the market is expecting additional declines as it becomes more convinced of ending storage levels.
- Fundamental expectations support additional price declines with temperatures starting to moderate in the East and Mid-Con regions. Only Texas will hold onto the above-normal temperature readings over the coming two weeks. Production, which declined this past week, continues to press near-weekly records.
- The historical seasonal trend for prices after July promotes additional declines as the market becomes comfortable with season-end storage forecasts. As this evaluation becomes clearer, expect prices to range trade, with a price negative bias in the near term. Contributing to the sentiment for decline is the move from the aforementioned highs of March and April to the 20-week moving average. Below that, the lows for August gas in April and May were $2.727-$2.736. Price rallies will run into sellers at the old support ($2.875).
- On July 10, Mont Belvieu ethane prices reached levels not seen since February 2014, 39.75 cpg. Exports are up, hitting a record high of 319 MBbl/d in April, according to EIA, and are likely to remain high over the next couple of months, as supply remains comparatively stable. The curve continues to reflect backwardation, dropping 2 cents next month and a large drop in Q1 2019.
- Permico Midstream was granted Nueces County tax incentives for its NGL pipeline project from the Permian to Corpus Christi. The company was relieved of paying property taxes for its pipeline and fractionator in the county, home to one of the fastest-growing NGL exporting ports.
- Inventories this past week reported a build of 2.4 MMBbl, according to last week’s EIA report. Propane stocks now sit at 63.6 MMBbl, approximately 3 MMBbl higher than at this time last year and 4.2 MMBbl lower than the five-year average.
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