- US crude oil inventories increased 2.8 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 2.9 MMBbl and 2.1 MMBbl, respectively. Total petroleum inventories showed a slight increase of 0.1 MMBbl. US crude oil production was flat compared to the previous week (per EIA). Crude oil imports were down 0.39 MMBbl/d versus the week prior, to an average of 6.5 MMBbl/d.
- WTI prices continued their strength with traders actively buying around the same headlines that have supported the recent price rally. The OPEC and non-OPEC supply cuts, declining Venezuelan production due to sanctions and power outages, declining Iranian production, and the rumors that Saudi Arabia has a price goal around $70/Bbl Brent gave prices another shot to move higher. President Trump’s tweet on Thursday caused a brief pause to the increase in prices as he asked for an increase in flows from OPEC and lower prices.
- The continued push in prices was in direct conflict with the strong move in the US dollar (usually an inverse relationship) and the expanding news of a global economic slowdown with the weak manufacturing data from Asia, Europe, and the US. It will be very difficult to maintain the current trend without a successful conclusion to the tariff discussions between China and the US, which would counter some of the recent negative economic indications.
- The CFTC report (positions as of March 26) showed continued speculative commitment to the current bullish trend. The Managed Money long component significantly increased its speculative length by 20,620 contracts, while the short sector was forced to cover 7,766 contracts. It is becoming clear that the speculative bulls are adding to positions on price declines down to the $58.00/Bbl area.
- Whether the speculative trade can continue to buoy prices is unknown, but further gains will see pressure from US production gains throughout 2019. With higher prices, US producers will likely afford themselves higher-priced hedges, and many are projecting double-digit growth rates in 2019. These gains would offset the supply cuts by OPEC and non-OPEC producers.
- Last week’s trade closed over the $60.00/Bbl milestone and was the highest weekly close since early November ’18. Market internals are marginally supportive, with the momentum indicators remaining slightly bullish; volume was slightly higher last week, but open interest continues to lag for a strong bull move. Prices have had a solid move higher over the past four weeks and may be in need of a brief period of consolidation. Having closed over $60/Bbl, the trade may extend the gains this week to areas between $60/Bbl and $67.95/Bbl ($61.28 and $62.63-$63.14) that briefly held the declines during the collapse last October. Without some sort of catalyst that speculators can utilize to push prices to resistance areas, a consolidation phase to WTI trade will eventually appear, with a potential retracement back to the breakout area around $57.96/Bbl and down to $55.00/Bbl.
- Natural gas dry production showed substantial gains, increasing 1.12 Bcf/d, with most of the gains coming from the Rocky Mountain and South Central regions. Canadian imports decreased 0.44 Bcf/d.
- Res/Com demand fell 5.13 Bcf/d, while Power and Industrial demand declined 1.21 Bcf/d and 0.75 Bcf/d, respectively. LNG exports fell 1.19 Bcf/d on the week due to maintenance at Sabine Pass, while Mexican exports increased 0.11 Bcf/d. For the week, total supply increased 0.74 Bcf/d and total demand fell 8.31 Bcf/d.
- The storage report last week came in with a draw of 36 Bcf. Total inventories are now 285 Bcf below last year and 551 Bcf below the five-year average. Storage inventory levels will likely end at 1.107 Tcf, with future storage reports expected to show injections.
- The expiration of the April contract was met with selling in each day of the three-day closing period. That expiration behavior has only occurred on two other occasions since November ’16. The close on Friday was the lowest since the middle of February, and the declines should be expected to expand during this week. Price behavior continues to follow the script that occurred during spring 2018, trading in a well-defined range.
- The CFTC report (as of March 26) showed the Managed Money long sector reducing positions by 13,351 contracts, while the short sector reduced positions by 113 contracts. The speculative elements in this market continue a lack of commitment to long-term directional bias, with the longs reducing exposure after recent additions to positions.
- Market internals are neutral with a bearish bias as the choppy trade last week stayed in the $0.114 range, with volume and open interest declining (as expected with the expiration). It should be noted that open interest gained (while prices declined) at the end of the week when the May contract took over as prompt month. The lack of interest in natural gas as a trading instrument by the larger funds is clearly confirming that prices, currently, are going nowhere.
- Expect the decline at the end of the week to continue, and the market may test support into the $2.50s before the May contract finishes as prompt month. For prices to test the lows established on February 7 ($2.549) and February 15 ($2.543), the speculative short sector will have to shoulder the selling load. This area between $2.56 and $2.52 has held all declines since 2016. Should prices break below this key level, then the multi-year lows below $2.20 will likely be tested. Rallies will find selling as prices advance to last week’s highs ($2.77).
- Permit freezes in Pennsylvania have delayed the full completion of Mariner East 2 and are potentially delaying the startup date of 4Q19 for Mariner East 2X. These permit freezes are likely related to the sinkholes around Mariner East 1. However, should these permit freezes be resolved soon, the startup date for ME 2X is still feasible.
- Prices were mainly down last week. Ethane dropped 8.6% week-over-week, falling $0.022 to $0.234; normal butane was down $0.025 to $0.742, isobutane was down $0.034 to $0.813, and natural gasoline was down $0.033 to $1.272. Propane was flat week-over-week.
- US propane stocks increased ~0.5 MMBbl the week ending March 22. Stocks now sit at 51.6 MMBbl, roughly 16.0 MMBbl and 8.8 MMBbl higher than the same week for March 2018 and March 2017, respectively.
- Weekly waterborne imports of crude oil rose last week according to US Customs manifest data obtained by DrillingInfo. PADD 1 and PADD 5 showed low levels, with imports to PADD 1 showing slightly more than 440,000 Bbl/d and PADD 5 slightly above 450,000 Bbl/d. The growth was driven by an increase in PADD 3, which rose to more than 2.15 MMBbl/d, the first time it rose above 2 MMBbl/d since the week ending February 15.
- The ITC Deer Park fires has cut down the flow of crude oil into the Shell/Pemex Deer Park refinery, which is west along the Houston Ship Channel. Reuters reported last week that the 275,000 Bbl/d refinery had cut runs due to a shortage of crude supply. Last week saw an uptick in receipts to the refinery, which typically processes Mexican crude oil.
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