- US crude oil inventories increased 3.6 MMBbl, according to the weekly EIA report. Gasoline inventories decreased 0.8 MMBbl, and distillate inventories increased 3.45 MMBbl. Total petroleum inventories showed an increase of 2.4 MMBbl. US crude oil production remained unchanged from the prior week. Crude oil imports were up 608 MBbl/d to an average of 8.2 MMBbl/d versus the week prior.
- Prices may have established a short-term bottom to the trade, as prices closed the week with a slight gain for the first time in the past eight weeks (closing the week up $0.53/Bbl). The market received some bullish news over the weekend. Alberta announced producers would be forced to cut output by 325 MBbl/d to deal with bottlenecks, and the US and China came to a temporary truce over tariffs, while OPEC is still expected to determine supply cuts during a December 6 meeting. Qatar announced that it is leaving OPEC in January due to Saudi Arabia’s dominance of the group.
- The waivers granted to eight countries, allowing them to continue to work with Iran for crude, were established for six months. The market is now one month closer to expiration of those waivers, potentially bringing the oversupplied market more into balance.
- Last week provided two CFTC reports due to the Thanksgiving holiday. Combining the two reports shows the managed-money sector reducing long positions by 22,578 contracts and short positions decreasing 16,341 contracts. These position changes infer additional length liquidation and that the speculative short sector took some profits as the market extended into extreme oversold internals.
- Even with the small weekly rise in prices, the market remains oversold. The close on Friday has prices beyond two standard deviations below the 20-week moving average. The weekly momentum indicator is oversold to levels not seen since the declines of August 2015. Open interest in the WTI market continues to decline, while the volume showed a slight gain on the week.
- The market is due for a countertrend rally to alleviate the pressure from the seven-week liquidation. Should last week’s gains and the bullish news over the weekend provide a base for a countertrend rally, price action should become volatile and could take prices above last week’s high at $52.56/Bbl and potentially up to $57.44/Bbl.
- Drillinginfo continues to believe the long-term range for prices will occur between $60/Bbl and $65/Bbl for an extended period. However, the market may trade within the range of $51-$61 in the near term as the market assesses the potential supply changes coming up.
- Dry gas production increased last week 0.60 Bcf/d, with most of the gains from the Mountain, Gulf/Southern, and Northeast regions. Canadian imports decreased 0.15 Bcf/d.
- Moderating weather last week brought a decline in Res/Com demand, which fell 1.71 Bcf/d. Power demand increased 1.84 Bcf/d, while Industrial demand decreased 0.39 Bcf/d. LNG exports increased slightly, up 0.05 Bcf/d, and Mexican exports increased 0.06 Bcf/d. Totals for the week show supply up 0.45 Bcf/d and demand down 0.12 Bcf/d.
- The storage report last week showed a withdrawal of 59 Bcf. The release sent prices immediately down to $4.452 before buying returned to the market and erased the losses provided by the report.
- The CFTC report dated November 20 was released last Monday and contained the position change that was expected, but in an odd way. Between November 13 and 20, over 100,000 contracts held by “spread” traders were liquidated. An additional 39,355 short positions from the “other reportable” market segment were forced to cover. The combination of short covering and spread liquidation by the speculative sector explains the historic decline of open interest and the drastic rise in prices on November 14. Another interesting element of the CFTC release (dated November 20) was the reduction of the managed-money (speculator) long sector, which took profits and reduced positions by 41,243 contracts as prices blew out to $4.92 during the short-covering crises.
- Last week, the CFTC report (dated November 27) showed every speculative and merchant market sector reducing positions during the week. Both the managed-money long and short positions were reduced by 5,851 contracts and 6,451 contracts, respectively.
- The net result of the position liquidation and short covering has left the market over $4.00. Last week, prices challenged support at $4.00 briefly on Monday before resuming the rally during the expiration of the December contract, sending prices to $4.80. The largest contributor to the price volatility is the midterm weather forecast. Warming forecasts will send prices to support around $4.00, while extensions of below-normal forecasts will lend support to test the high end of the range around $4.80.
- Energy Transfer announced that its subsidiary Sunoco Pipeline launched an open season for the transportation of propane+ from the Marcellus/Utica to Marcus Hook on the Mariner East system. This likely has to do with the dynamics of Mariner East 2 commissioning, as space might have been freed up on the existing system, or shippers may have rescinded commitments because of the delays. Nonetheless, this could be a good sign that the ME2 in-service is nearing completion, which will allow increased exports and higher relative pricing in the Northeast and the US.
- Week over week, ethane, propane, and natural gasoline are up 6%, 3%, and 3%, respectively, to 32, 71, and 69 cpg. Normal and isobutane are down 3% and 5%, respectively, to 74 and 82 cpg. The Conway-Mont Belvieu EP mix spread has shrunk to 7 cents, its smallest difference between indices since February this year.
- The EIA reported a draw of 0.6 MMBbl in this past week’s inventories. Propane stocks now sit at 81.1 MMBbl, approximately 7.4 MMBbl higher than this time last year and 2.6 MMBbl lower than the five-year average.