- US crude oil inventories showed a large increase of 8.0 MMBbl last week, according to the weekly EIA report. Gasoline inventories increased 4.1 MMBbl, and distillate inventories declined 0.6 MMBbl. Total petroleum inventories increased 6.7 MMBbl. US crude oil production was unchanged last week (per EIA). Crude oil imports were up 664 MBbl/d to an average of 8.2 MMBbl/d versus the week prior.
- In bullish news, China and Japan introduced fiscal stimulus measures to support growth. Additionally, the OPEC-led supply cuts and lower US production expectations by the EIA support the lower supply outlook, and the Trump administration told US energy companies that Venezuelan oil sanctions could be placed on the country if the political situation worsens.
- The bearish news had centered on China reporting its weakest economic growth since 1990, South Korea reporting a six-year growth rate, and the International Monetary Fund lowering its forecast for economic growth to 3.5 percent in 2019 and 3.6 percent in 2020. These factors increased concerns about global economic growth and demand for oil products.
- Even though the price range narrowed last week to $2.44, there is potential for more volatility as the market assesses the OPEC production cuts and the ongoing tariff discussions between China and the US. A resolution to the tariff issue may have a dramatic impact on prices because, should tariffs be prevented, it would be supportive to oil prices. This could come simultaneously with the OPEC and non-OPEC reductions and could remove some of the supply overhang conditions that currently keep a lid on prices. Should the tariff issue not be resolved, and the Chinese economy continue to suffer, the OPEC cuts may not be enough to offset the supply glut, adding pressure to prices.
- Prices in WTI settled the week slightly down as the market tested the highs from early December, just above $54.00/Bbl. This brief rally lacked the critical internal elements of increasing volume and open interest. The trade last week showed a consolidation phase of a market trying to discern the next directional bias rather than an accumulation of the market position. The CFTC report is still not available, due to the government shutdown; therefore, the market is blind to position structure among the sectors. With the shutdown ending, the market will get some definition as to the positioning of the traders in the coming weeks.
- The high end of the price range was tested last week, and prices may stay in the range from last November and December, between $49.00/Bbl and $54.55/Bbl. The market may probe higher after last week’s action, but the gains are unlikely to hold without key news regarding the tariff dilemma between the US and China.
- Dry natural gas production declined dramatically, falling 1.08 Bcf/d, while Canadian imports increased 0.12 Bcf/d. The declines are mainly due to the TETCO pipeline explosion, which caused production to decrease in the Northeast.
- Res/Com demand increased 6.47 Bcf/d, while Power and Industrial demand increased 0.57 Bcf/d and 0.72 Bcf/d, respectively. LNG exports declined 0.80 Bcf/d on the week, while Mexican exports gained 0.14 Bcf/d. Totals supply is down 0.95 Bcf/d and demand increased 7.27 Bcf/d for the week.
- The storage report last week came in with a withdrawal of 163 Bcf, which is closer to the seasonal normal but slightly below historical withdrawals for the same week. The coming two weeks’ reports are likely to meet or exceed historical norms.
- Prices started the week with a dramatic decline, closing the gap from the previous week. These declines were enhanced by a change in forecasts that showed moderating temperatures for early February. As discussed, the price action in natural gas will be the result of demand expectations resulting from the winter weather. This leaves the market subject to dramatic and violent changes in direction and extreme volatility.
- The CFTC report is still not available, due to the government shutdown. However, the government shutdown has ended, and the report will be available in the coming weeks. Market internals had weekly volume declining on the collapse (affected by lighter holiday trade), while open interest remained flat on the week.
- The declines last week took prices down to the lows of the week at $2.957/MMBtu, then found some support and closed the week $3.178/MMBtu after forecasts defined the severity of the cold this week. For the week, prices traded in a volatile $0.404/MMBtu range. As long as the market is subject to shifts in the weather forecast, these volatile swings will continue, as exemplified by this morning’s decline of $0.25/MMBtu on the open.
- With some of this season’s highest demand for gas coming this week, the market will likely get a better understanding of the March net inventory picture According to the weather models this morning, this cold spell is expected to let up early in February, with additional cold coming later in February. This leaves it likely that trade will continue consolidation between $2.85/MMBtu and $3.20/MMBtu.
- Prices generally improved. Ethane is up 2 cents to $0.32, propane is flat at $0.67, and normal butane and isobutane are each up 2 cents to $0.82. Natural gasoline was down 2 cents to $1.04.
- Mariner East 1 was shut down last week due to another sinkhole. Sunoco will resume operation once it gets approval from the PUC’s Bureau of Investigation and Enforcement. Mariner East 2 continues to flow despite the fact that a variety of old pipes were used to complete the construction in late December.
- US propane stocks decreased about 3.7 MMBbl in this past week’s inventories. Stocks now sit at 63.7 MMBbl, about 9.9 MMBbl higher than in the first week of 2018 but 4.4 MMBbl lower than in the first week of 2017.