- US crude oil inventories decreased 1.2 MMBbl, according to the weekly EIA report. Gasoline inventories increased 2.1 MMBbl, while distillates inventories declined 1.5 MMBbl. Total petroleum inventories posted a withdrawal of 6.0 MMBbl. US crude oil production decreased 100 MBbl/d from the prior week. Crude oil imports were up 174 MBbl/d, reaching an average of 7.4 MMBbl/d versus the week prior.
- Prices consolidated in a narrower range last week after the spiraling declines from early October highs. Trade was trying to evaluate the supportive news that OPEC had agreed to reduce overall production by 0.8 MMBbl/d from October levels for an initial six months starting January 2019. In conjunction, non-OPEC countries agreed to reduce production an additional 0.4 MMBbl/d. However, skepticism surrounds Russia’s commitment to the cuts, as they announced they would cut 50-60 MBbl/d in January and gradually attain the 220 MBbl/d commitment.
- In bearish news, concerns continue that a global economic slowdown pressuring energy demand is underway. A mix of bullish and bearish news brings uncertainty and noncommitment to directional bias to the trade, which led to the type of consolidation trade experienced last week. This trade kept the price range in the lowest range since late October, with the difference between the low and the high last week being only $3.91/Bbl.
- The CFTC report had a negative bias to positions, as the managed-money long positions liquidated 3,047 contracts and increased short positions by 6,293 contracts. The consolidation trade mitigated the oversold status of WTI. Since the declines from the October highs, total open interest in WTI had lost significant interest in the position of traders. The chart below shows the decline in the open interest that has occurred from last July and accelerated after the October highs.
- Interestingly, open interest has started to recover after the lows established two weeks ago. The market may be establishing a base for the next move (either direction) as trade establishes more positions.
- The market found a small bounce off the news from Libya regarding a force majeure on exports from the largest oil field (El Sharara) due to an attack by a militia group. These events will likely be short term and will not impact WTI prices as the market discerns the macro market data input.
- WTI seems to have found buyers at the recent lows just under $50/Bbl. The high end of the recent range has been limited to $54.55/Bbl. Expect any rally between the two to be met with selling. The potential high side of the range is $57.44/Bbl, which is unlikely without some additional positive news. The lows from October 2017 ($49.18/Bbl) will find buying during the remainder of the year while the market digests the current fundamentals.
- Drillinginfo continues to believe the long-term range for prices will occur between $60/Bbl and $65/Bbl after the market fully digests the global supply-and-demand profile. Getting to that fundamental understanding will take an extended period of time, during which the near-term range between $51/Bbl and $61/Bbl will hold the trade.
- Dry production decreased last week 1.02 Bcf/d with declines in the Northeast and the Gulf. The Canadian imports offset some of the declines, increasing 0.42 Bcf/d.
- Res/Com demand increased 2.82 Bcf/d while Power and Industrial demand increased 0.43 Bcf/d and 0.32 Bcf/d, respectively. LNG exports were up 0.10 Bcf/d on the week, while Mexican exports decreased 0.04 Bcf/d. Total supply was down 0.60 Bcf/d, and total demand increased 3.69 Bcf/d.
- The storage report last week showed a withdrawal of 77 Bcf. The release could not maintain the gains made earlier in the trade day as prices declined throughout the day.
- The CFTC report (dated December 11) showed a bearish adjustment by the trading participants. The managed-money long participants sold 5,077 contracts, while the short positions added 5,051 contracts. The market lost a significant amount of open interest during the short covering rally, as prices ran up to $4.92. The declines in open interest continued in recent weeks, flattening out only in the past couple of weeks. The chart below exemplifies the open interest position during this time and shows the current position remained at lows for the past five months. With the collapse in prices at the end of last week, expect the declines in open interest to be focused on declines in the managed-money long participants, as they were forced to cover length.
- The collapse, caused by warming temperature expectations, has taken prices down to where they started before the hedge fund implosion and short-covering action that rocketed prices up to $4.92. The capitulation firmly established a bearish reversal, eliminating the bullish bias that had held the market for eight weeks. The declines have brought prices well below overbought bias, and some momentum indications are hinting at being oversold. Market internals support the negative price environment, with volume rising with the declines.
- As witnessed last week, weather forecasts will continue to have the greatest influence on the volatility and direction of price movements. Continued warming forecasts will send prices to the November breakout level ($3.58), while any moderation of the warming will send prices back to challenge $4.00 and major resistance at $4.10.
- An administrative judge ruled against an emergency petition to shut down the construction on the Mariner East pipeline on December 11. But on December 14, two workers were sent to the hospital in an accident on the 80+-year-old pipeline, which causes more speed bumps for Sunoco and the building of Mariner East 2.
- Last week’s Mont Belvieu ethane, propane, normal butane, and isobutane prices were down 5.8%, 4.5%, 7.1%, and 8.6% from the week prior, respectively. Only natural gasoline was up, 2.8%. The Mont Belvieu and Conway EP mix spread improved a third of a cent from 5.08 cpg the week prior.
- Weather forecasts for the remainder of the year are estimated to be above average, and propane heating demand is likely to be less than normal. The week ending December 7, temperatures assisted in the biggest draw of inventories since mid-March, pulling 3,247 MBbl. Exports during the same week were down 445 MBbl because of shipping delays but are expected to increase through the end of the year due to winter weather in Asia. Mont Belvieu propane prices were down 4.2% and averaged 69.4 cpg this past week.
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