- US crude oil inventories increased by 1.2 MMBbl, according to the weekly EIA report. Gasoline inventories decreased by 1.5 MMBbl, and distillates were up slightly at 0.1 MMBbl. Total petroleum inventories showed an increase of 3.3 MMBbl. US production was estimated to be flat on the week. Crude oil imports were up 699 MBbl/d to an average of 9.1 MMBbl/d versus the week prior.
- WTI began the week’s trade with concerns about whether the stated increase in output from OPEC was going to be able to offset the continuing declines from Libya, Venezuela, Canada, and Iran. The US has stated that it will take a hard stance against allies that do not eliminate by early November imports of Iranian oil. India and South Korea have already announced plans to discontinue Iranian supplies.
- Later in the week, when word came out that Saudi Arabia had increased production by 0.5 MMBbl/d in June, the trade turned lower. The bearish inventory release didn’t help. Over the weekend, Russia announced an increase of production to 11.1 MMBbl/d for the first four days of July. It is now becoming clear that the increases agreed on in the OPEC meeting have started coming back on the market. It is also evident that Russia and Saudi Arabia are poised to meet the output suggestions from the OPEC meeting in short order.
- Last week’s consolidation trade, in a narrower range (just under $2.00/Bbl) during lighter holiday trade, brought the market internals back under the extreme over the bought levels of the previous week. The trade went to a lower low during the week, but on lighter volume. Due to the holiday, the CFTC report release has been delayed, but with the price gains through Tuesday, expect additions to the managed money long positions. It should be noted that the spread between the August and September WTI contracts continued to expand, with the spread closing at $2.23/Bbl on Friday. The market is indicating that the gains in output may not affect the prices going into August, but perhaps the news generated over the weekend will cause traders to reassess this assumption. The separation between August and September is a characteristic of a “blow off” top type of event that affects the prompt month but does not bring the other months along with it.
- With prices for WTI testing and failing at a new high ($75.27/Bbl), and then trading below the previous week’s low, the market may be in the process of developing a tradable resistance zone. Should a “blow off” top event come to fruition, then the November 2014 price ($77.02/Bbl) may be the target. If there is a move to the downside, there is not a lot of support between last week’s low ($72.14/Bbl) and $70.56/Bbl. Expect an increase in volatility with traders coming back from holiday this week and as the market digests the recent news. Eventually, after the volatility recedes and consolidation commences, prices will range from $60-$65/Bbl during the year.
- Natural gas dry production increased last week, rising 0.27 Bcf/d. Canadian imports increased 0.40 Bcf/d. This now establishes yet another new record high weekly average for production.
- The US power demand increased 3.67 Bcf/d on the week, while Res/Com decreased by 1.80 Bcf/d, and industrial demand increased by 0.03 Bcf/d. LNG exports declined slightly, falling 0.10 Bcf/d on average for the week, and Mexican exports were nearly flat, gaining 0.02 Bcf/d week on week. These events left the totals for the week showing the market gaining 0.64 Bcf/d in total supply, while total demand was up 1.85 Bcf/d.
- The storage report last week came in slightly above expectations with an injection of 78 Bcf, immediately sending prices down to support price levels provided from the March and April highs ($2.811 and $2.839, respectively). With the heat in the East and Mid-Con regions this past week, expect a release with a lower injection this week.
- Prices opened the holiday-shortened week with weakness, breaking below the commonly watched 50-day and 200-day moving averages. Due to the holiday, the CFTC report was delayed and won’t be published until later today. Market internals had volume reduced on a daily average and for the week with the lighter trade. Open interest looks to be down slightly, also a result of the lighter trade.
- The market received few fundamental data changes as the heat in the East and Mid-Con regions looks to be extending into the middle of the month. There were modifications made to the temperatures forecast in the South (moderating), and some of the longer forecasts have the heat dissipating slightly as we go through July into August. This type of pattern, with the continuing gains in production, seems to be driving declines as the market is evaluating the upcoming demand from the summer heat against the continuing growth in production.
- The historical seasonal trend for prices during the late summer promotes additional declines, as the market can more accurately analyze the season-ending storage forecasts. Until that picture becomes clearer, expect prices to trade with a price negative bias in the near term. Contributing to the sentiment for decline is the move from the aforementioned highs of March and April to the 20-week moving average. Below that, the lows for August gas in April and May were $2.727-$2.736, respectively. Price rallies will run into sellers at the old support ($2.875) all the way up to the highs of last week.
- Sunoco Pipelines is pursuing the ability to use an older, existing 12-inch pipeline to ship ME2 NGLs through Delaware and Chester County after receiving pressure from clients to deliver promised liquids. The pipeline is estimated to have been built around the same time as Mariner East I, with which it runs parallel. Township officials have no control over the proposed change.
- Mariner East 1 was allowed to resume service on June 14th after sinkholes were discovered near the pipeline. Mariner East 2 construction is currently halted, but still has a target in-service in 3Q’18, while Mariner East 2x plans to be in-service at 2H’19.
- Inventories this past week reported a build of 2.9 MMBbl in last week’s EIA report. Propane stocks now sit at 61.2 MMBbl, approximately 2.8 MMBbl higher than this time last year, and 4.5 MMBbl lower than the 5-year average.