- US crude oil inventories showed an increase of 0.9 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 2.2 MMBbl and 1.1 MMBbl, respectively. Total petroleum inventories declined 4.8 MMBbl. US crude oil production was unchanged last week (per EIA). Crude oil imports were down 1.1 MMBbl/d to an average of 7.1 MMBbl/d versus the week prior.
- The bullish inventory release supported the market, which started the week with bearish news on China’s announcement that 2018 showed the slowest economic growth in 30 years. This news, coupled with the weak earnings reports from US industrial firms, brought concerns that global economic growth may be in jeopardy and the supply overhang may be extended.
- Last week’s bearish beginning was replaced with news that brought a solid bid to WTI prices. On Tuesday, the Trump administration announced the decision to impose sanctions on Venezuelan state-owned oil from PDVSA. This may put as much as 0.5 MMBbl/d of crude at risk. This news was followed by the announcement from Saudi Energy Minister Khalid al-Falih that Saudi Arabia will reduce output to 10.1 MMBbl/d during February from the original quota level of 10.3 MMBbl/d. Additionally, news that the European Parliament recognized Guaido as interim president, and put Venezuelan heavy crude cargoes on hold, also had a positive impact on prices.
- Long-term support still hangs in the balance on the continuing tariff negotiations between China and the US. The upbeat tone of those meetings, and President Trump announcing that he would meet with Chinese president Xi Jinping soon to potentially seal a comprehensive trade deal, brought additional strength to WTI prices.
- With the government reopening last week, the CFTC started publishing trade data. The CFTC will be publishing data on Tuesdays and Fridays until the reports are brought current. The December 24 report had the speculative long position at 196,962 contracts, while the speculative short position was 120,752 contracts. While not balanced, the data does show that a short position had been established during the declines from the October highs.
- Prices in WTI settled the week up $3.46/Bbl as the market tested the highs from early December and closed the week above those levels. Watch for gains on higher volume and open interest to signify long-term expectation of gains beyond current levels. The next area for the rally to take prices up is the mid-November high of $57.96/Bbl. Should bearish news damage traders’ expectations, then the area around $50/Bbl should find support.
- Due to the dynamic environment surrounding WTI, prices are still subject to high volatility. Currently, the market is sending a breakout bias, but it can still fall subject to negative news (especially around global growth or failure of a significant deal between China and the US on tariffs) that can cause a quick and brutal blow to the recent gains.
- Dry gas production increased 0.35 Bcf/d for the week. Canadian net imports increased 0.80 Bcf/d primarily due to decreased exports from the US to Canada. This was caused by increased demand because of the polar vortex.
- Res/Com demand increased 3.59 Bcf/d, while Power and Industrial demand increased 0.80 Bcf/d and 0.28 Bcf/d, respectively. LNG exports were flat on the week, while Mexican exports gained 0.14 Bcf/d. For the week, supply gained 1.15 Bcf/d while demand increased 4.94 Bcf/d.
- The storage report last week came in with a withdrawal of 173 Bcf, below expectations, and extended the declines that had already started prior to the release.
- For the third time in the past four weeks, prices opened with a gap from where prices closed the week before. Governed primarily from warming forecasts, prices broke below several areas of support, with trade reconciling views that winter is over and storage issues are no longer a factor. This bias resolution has the market chasing the Q1 lows that occur annually.
- Market internals with the price action occurred on lower volume, but with slight gains in open interest, which is not normal with expiration. The CFTC report identified positions on December 24 that had the market predominantly long from the speculative sector. The CFTC will be updating each week on Tuesdays and Fridays until it is current with release dates. Drillinginfo will follow these updates and report on them weekly.
- The declines last week took prices below the lowest price so far in 2019. The weak close on Friday and the warmer upcoming weather this week set up the potential for additional declines early, barring any changes in the weather forecasts further into February.
- Further declines will face support at the 2018 lows between $2.621/MMBtu and $2.752/MMBtu. Rallies from $2.85/MMBtu to $2.983/MMBtu are expected to be met with selling. Short of a major shift in weather forecasts, the high for the March contract has already occurred. The market has defined its bias negative for the coming weeks; therefore expect the March contract to expand the losses during February.
- Average prices last week generally improved from the week prior. Ethane up $0.02 to $0.34; normal and isobutane were up $0.05 to $0.87; and natural gasoline was up $0.06 to $1.10. Propane ended the week at $0.70, but average prices for the week were flat to the week prior at $0.67.
- Ethane hit a high of $0.35 last week as strong US cracker and export demand continue. However, despite high demand, ethane prices remain slightly discounted due to higher global storage and competitive propane/naphtha prices.
- Propane will likely post a strong draw next week due to the polar vortex, but the product’s heating demand is expected to fluctuate throughout the month. Currently, forecasted temperatures are warm the first part of February and turn colder later in the month. However, similar to ethane, propane will see prices capped because of lower chemical feedstock prices, in addition to lower crude prices.
- US propane stocks decreased about 3.6 MMBbl the week ending January 25. Stocks now sit at 60.2 MMBbl, about 7.1 MMBbl higher than the first week of 2018 but 2.5 MMBbl lower than the first week of 2017.
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