- US crude oil inventories decreased by 0.5 MMBbl, according to the weekly EIA report. Gasoline inventories increased 1.8 MMBbl, while distillate inventories declined 4.2 MMBbl. Total petroleum inventories showed a substantial decrease of 10.3 MMBbl. US crude oil production was unchanged from the prior week. Crude oil imports were up 30 MBbl/d to an average of 7.4 MMBbl/d versus the week prior.
- Prices started the week down significantly and never recovered, despite the Fed comments on lowering 2019 rate hikes and the inventory report released on Wednesday. Both events brought brief periods of positive price movement. However, by the end of the week, negative pressures from equity declines, global demand concerns, and the upcoming partial government shutdown brought too much uncertainty to the WTI market, as prices closed the week at their lowest level since August ’17.
- The declines occurred despite the bullish news of OPEC and non-OPEC reducing output by 1.2 MMBbl/d in 2019. The market also shrugged off the news that Libya’s largest oil field, Sharara, has been shut down by a force majeure, with a loss of 315 MBbl/d expected. The trade seems convinced that production cuts by the participants may not be implemented according to plan nor will they be enough to offset expected global demand growth declines.
- One element of the trade that does not appear to be pressuring prices is the US dollar. Usually WTI and the dollar index move in opposite directions. This inverse relationship has abandoned the trade during December. Looking at the chart below, notice the inverse trade, as prices declined from the October highs, while the dollar climbed. Since the start of December, both have declined, with the dollar finding brief recovery at the end of last week.
- The CFTC report provided a source for some of the selling, as the Managed-Money long positions liquidated 11,064 contracts, while short positions increased 16,280 contracts. The report also had the Merchant sector of the market adding 28,660 contracts to the short positions (hedging production), but the Merchant long positions also increased 27,814 contracts. Should this Merchant sector become active with hedging positions during the coming week, expect increased volatility.
- WTI developed a range trade between $50 and $54 for three weeks, and it looked like the $50 level would hold the declines. Under pressure from the aforementioned data signals, the support area was destroyed and prices dropped $4 lower on Tuesday. All indications have prices lower this week after the weak close on Friday. Should the downward momentum continue, the next area for prices to attack is the June ’17 lows around $42. If the oversold conditions force a brief rebound in prices, the highs from the previous week around $53 will find sellers.
- Drillinginfo continues to believe the long-term range for prices will occur between $60 and $65, with the near-term trade range falling between $45 and $57.
- Dry gas production increased 0.13 Bcf/d. Canadian imports declined 0.10 Bcf/d.
- Warmer temperatures had Res/Com demand dropping 8.94 Bcf/d. Power demand and Industrial demand fell 1.46 Bcf/d and 0.64 Bcf/d, respectively. LNG exports are down 0.27 Bcf/d on the week, while Mexican exports increased 0.13 Bcf/d. Total supply gained 0.03 Bcf/d, while total demand dropped 10.95 Bcf/d.
- The storage report last week came in with a withdrawal of 141 Bcf. Similar to the previous week, the market was declining, and the release accelerated the declines into the close.
- The CFTC report (dated December 18) identified a source for the recent selling, as the Managed-Money short participants added 14,815 contracts. However, while some participants are expecting lower prices, the Managed-Money long positions also added 8,196 contracts. This action reflects the range environment that contained trade last week. A segment of the market considers the winter basically over, with the expectation that production growth will be able to counter any potential weather impacts. These expectations are offset by a segment of the market fearful of the supply/demand balance with the storage levels at record lows. These conflicting perceptions will leave the market susceptible to volatile swings in price due to changing weather forecasts.
- Prices consolidated last week between $3.516 and $3.938, while most of the trade time was spent in a narrow $3.60-$3.80 range. This behavior moderated the momentum indicators at extreme levels after the collapse the prior week. The broader range should maintain prices during the expiration and the holiday-shortened week. There will likely be periods of volatility, as the number of participants is lower during this period and the general movements of the market are directly correlated with weather forecasts.
- After dodging a shutdown from a petition earlier in the month, Mariner East 2 is now under a criminal investigation by the Chester County District Attorney’s Office. More regulatory issues for Energy Transfer and Sunoco increase the likelihood of further delays and push back relief to prices in the Northeast and railcar/pipeline congestion throughout the country.
- Last week’s Mont Belvieu ethane, propane, normal butane, isobutane, and natural gasoline prices were all down, 4.7%, 5.5%, 6.7%, 9.6%, and 8.0%, respectively, from the week prior.
- The EIA reported a draw of 3.3 MMBbl in this past week’s propane inventories. Propane stocks now sit at 73.2 MMBbl, approximately 1.4 MMBbl lower than at this time last year and 8.0 MMBbl lower than the five-year average.
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