The Week Ahead For Crude Oil, Gas and NGLs Markets – Feb 18, 2019

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CRUDE OIL

  • US crude oil inventories showed an increase of 3.6 MMBbl last week, according to the weekly EIA report. Gasoline inventories increased 0.4 MMBbl, and distillate inventories increased 1.2 MMBbl. Total petroleum inventories increased 6.5 MMBbl. US crude oil production was unchanged last week, and imports were down 0.9 MBbl/d to an average of 6.2 MMBbl/d versus the week prior.
  • The trade profile last week was the opposite of the prior week. Prices opened lower on continuing concerns about global economic growth and demand due to uncertainty surrounding the US-China tariff disputes.
  • The market’s bearish sentiment was reversed Tuesday when Saudi Energy Minister Khalid al-Falih announced that OPEC’s latest monthly release report showed the group had cut oil production nearly 0.8 MMBbl/d in January. The Kingdom went on to say that it is expecting production to decline to 9.8 MMBbl/day in March (compared to 11 MMBb/d in November) and exports to decline to 6.9 MMBb/d (compared to 8.2 MMBb/d in November). This news, and the continuing sanctions on Venezuelan production, brought a strong bid to WTI prices, regardless of the advancing dollar during the middle of the week.
  • On Friday, the bulls got supportive news from two fronts. First was the news of the Safaniyah oil field in Saudi Arabia producing at a reduced rate after a ship’s anchor cut a main power cable. Concerns about this reduction will likely be short-lived as the source of the reductions will probably be resolved quickly. The second element to the gains was the pummeling that the US dollar took, erasing nearly half of the week’s gains on Friday.
  • The market is starting to see a reversal from early January as managed money reduced short positions, and long positions are starting to increase slightly, per the CFTC report through January 22. Market internals are starting to shift positive as the gains last week were on higher volume and open interest, which the market will need in order to continue to extend prices further.
  • While the return of Libya’s largest field, El Sharara, may add 0.3 MMBbl/d, the key to prices in the near term will focus on the tariff negotiations between China and the US and the potential impacts on the global economy. These negotiations will resume as the countries are trying to work out an agreement before the self-imposed March 1 deadline. Success in these efforts will lead to a more bullish environment for prices and likely foster enough support to test the WTI highs from mid-November at $57.96/Bbl. Failure to secure the agreement will pressure prices, initially down to $50/Bbl, where the market consolidated in early January.

NATURAL GAS

  • Natural gas dry production increased 0.69 Bcf/d, and Canadian imports increased 0.31 Bcf/d.
  • Res/Com demand gained 6.13 Bcf/d on the week, while Power and Industrial demand increased 2.64 Bcf/d and 0.77 Bcf/d, respectively. LNG exports gained 1.53 Bcf/d on the week due to weather clearing up in the gulf, allowing ships to reach port. Mexican exports declined 0.05 Bcf/d. Totals for the week show supply gaining 1.00 Bcf/d and demand increasing 11.44 Bcf/d.
  • The storage report last week came in with a withdrawal of 78 Bcf, well below seasonally normal withdrawals. Levels are 30 Bcf below last year at this time and 333 Bcf below the five-year average.
  • For a fifth consecutive week, prices opened Sunday with a gap, this time a higher gap. From the early week highs, prices succumbed to selling pressure, and prices went below the previous week’s low on Friday ($2.543/MMBtu) before finding a bid and closing the week at $2.625/MMBtu. This is another test of the lows established in 2016 between $2.522 and $2.568/MMBtu. While last week’s prices did soften the oversold market internal status, the declines were met with declining open interest on higher volumes as prices traded in a narrow range of $0.20/MMBtu.
  • The CFTC report was released through January 22nd and provided limited insight to any major shift in the managed money long or short positions. While it did show slight gains in the managed money long sector, the key CFTC report showing the positions on January 29th and February 5th are likely to confirm the last of the winter speculative long positions leaving the market.
  • Rallies in the gas market will continue to be in relation to forecast changes for the remaining winter season. Currently, both the Euro model and the US model have colder temperatures returning to high-demand areas of the country after above-average temperatures in the eastern, Atlantic and southern states this week.
  • The natural gas market will likely be in a range market during the coming weeks, as it was in 2018 when trade ranges were $2.53 to $2.84/MMBtu between February and April. Total open interest is at lows not seen since January 17 as prices were headed to retest the $2.52 support level. For the coming week, traders will likely hold the “wait and see” position.

NGLs

  • Prices were mainly up last week. Propane was up $0.01 to $0.65, normal butane up $0.02 to $0.84, isobutane up $0.04 to $0.87, and natural gasoline up $0.03 to $1.14. Ethane was the only price reduction week over week, falling $0.01 to $0.31.
  • US propane stocks increased ~0.7 MMBbl for week ending February 8. Stocks now sit at ~58.2 MMBbl, roughly 12.5 MMBbl and 5.0 MMBbl higher than the same week for February 2018 and February 2017, respectively.

The Week Ahead For Crude Oil, Gas and NGLs Markets – Feb 18, 2019

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