- US crude oil inventories posted a decrease of 3.1 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 1.7 MMBbl and 0.6 MMBbl, respectively. The total petroleum inventories showed a decrease of 0.4 MMBbl. US crude oil production decreased 100 MBbl/d last week, per EIA. Crude oil imports were down 0.1 MMBbl/d to an average of 7.5 MMBbl/d versus the week prior.
- Prices started last week in a tight range as traders weighed the conflicting elements between the US and China trade issues that are having an impact on global demand and the geopolitical tensions in the Middle East. Expectations got a jump on the potential resolution of the disputes when President Trump said he would hold an extensive meeting with Chinese President Xi Jinping at the upcoming G-20 meeting between June 28-29. This news, along with the tensions between Iran and the US, provided a bid to prices as traders digested the impact of the bombing of two tankers in the Straits of Hormuz.
- WTI also got a positive spin from the expectation of production cuts being extended through the end of the year at the upcoming OPEC meeting July 1st and 2nd. Many analysts project that if the cuts remain in place, global demand will run ahead of supply through the end of the year. Also supportive of prices was the US Dollar index being weaker during the week.
- Just when prices were starting to challenge an area where selling had previously occurred, the market learned that Iran had shot down a US drone. This brought a new panic to the shorts, which were heading into expiration, and established a different intensity to the geopolitical risks associated with the WTI trade. The US responded with the Trump administration claiming that the destruction of the drone was a “serious mistake,” and the market waited to see what the response to this provocation would be. When the Trump administration terminated the military response at the end of the week, the bullish euphoria paused. This bullish response from the unexpected downing of the drone left many of the traders short of the prompt month contract going into expiration and assisted in the rally at the end of the week. This short covering at expiration sent prices to resistance levels at $57.50/Bbl.
- The positive correlation between the US equity markets and crude (associated with global economic growth) had an interesting twist last week, as the equity market initially fell on news of the downed drone while crude rallied. By the end of the week, the equity markets had rebounded while crude remained near its highs.
- The CFTC report (positions as of June 18) showed a reversal of some traders’ positions associated with the bombings in the Straits of Hormuz. The Managed Money long component added 8,823 contracts, while the short position was forced to cover 25,455 contracts.
- The market internals developed a short-term reversal and developed a neutral to bullish bias as prices rallied on strong volume but with declining open interest (normal for an expiring contract). The key for the WTI market will fall to the escapades in the Iran relationship. Should events escalate, further advances should be expected. The rally is subject to violent moves downward should the conflict minimize.
- The rally last week ran into resistance from the breakdown level from the end of May, around $57.50/Bbl to $58.00/Bbl. While this area may be probed in the coming week, without further expansions of the Iranian conflict, this area will find sellers. What was resistance earlier last week, around $56.84/Bbl, will now become initial support for declines. Probes lower should send prices back within the previous range, $50.00/Bbl to $54.84/Bbl.
- Natural gas dry production showed an increase of 0.12 Bcf/d, while Canadian imports decreased 0.77 Bcf/d due to the Alliance pipeline being shut down for repairs.
- Res/Com demand declined 0.14 Bcf/d, while Power demand increased 2.60 Bcf/d and Industrial demand dropped 0.04 Bcf/d. LNG exports gained 0.20 Bcf/d on the week, while Mexican exports increased by 0.03 Bcf/d. These events left the totals for the week showing the market dropping 0.65 Bcf/d in total supply, while total demand increased by 2.73 Bcf/d.
- The storage report last week showed the injections for the previous week at 115 Bcf, which was well above market expectations. Total inventories are now 209 Bcf higher than last year and 199 Bcf below the five-year average. With demand gaining last week and supply decreasing, expect the EIA to report a weaker injection this week.
- Weather models continue to show summer temperatures arriving in the southeast, south central, and eastern regions this week, but moderating in the following weeks. Similar to last week’s power burn increase, the expected summer weather will increase Power demand and provide the market demand levels with which to evaluate the upcoming Power demand requirements over the summer months.
- The CFTC report (as of June 18) showed the Managed Money long sector decreasing positions by 7,444 contracts, while the short position took another addition to positions by adding 22,968 contracts. These additions add to the discussion last week that the speculative short-trade position continues to expect additional declines. However, the short position is reaching high levels based on history.
- Market internals continue to show a bearish bias as total volume increased week over week (especially on the storage release), while total open interest showed a slight gain (according to preliminary data from the CMS) on the week.
- The fundamental indicators continue to show production at high levels but leveling off over the last four weeks. The July contract expires this week, and the trend (last 2+ years) has any declines during expiration met with a rally during the three-day process. Expect a brief rally in the coming week during the expiration period, taking prices up to the $2.30 area, where prices broke below last week. Last week’s low, which was down to $2.151, should find buyers. Any eventual probe lower will find buyers at the lows from May ’16 at $2.101.
NATURAL GAS LIQUIDS
- A fire erupted last Friday at a Philadelphia Energy Solutions (PES) refinery. The fire originated from a storage tank holding propane and butane, and it may have affected an alkylation unit at the refinery. Should the refinery need to shut down or run at reduced rates, PES may need to find alternative outlets for the crude they are committed to take by railcar out of the Bakken. The fire was put out on Saturday afternoon.
- NGL prices strengthened across the board week over week. Ethane gained $0.002, to $0.169; propane was up $0.013, to $0.425; normal butane was up $0.019, to $0.487; isobutane was up $0.033, to $0.531; and natural gasoline was up $0.051, to $1.069.
- US propane stocks increased ~3.3 MMBbl the week ending June 14. Stocks now sit at 74.5 MMBbl, roughly 20.4 MMBbl and 19.9 MMBbl higher than the same week in 2018 and 2017, respectively.
- US waterborne imports of crude oil fell for the week ending June 21, according to Drillinginfo’s analysis of manifests from US Customs & Border Patrol. The decrease was mostly driven by a drop in imports to PADD 5, but PADD 3 imports also fell. As of June 17, the data showed that PADD 5 imports stood at nearly 1.05 MMBbl/d, down by more than 400 MBbls/d from the prior week. PADD 3 imports fell by 50 MBbls/d. PADD 1 imports appeared to rise from the prior week.
- The explosion and fire at the PES refinery was major news on Friday. That refinery imports the majority of its crude diet, so a shutdown would impact waterborne grades. The refinery has significantly scaled back its imports of Nigerian grades such as Akpo in the past several months while increasing imports of North Sea grades such as Ekofisk, Grane, and Flotta from the UK and Norway. For more on the potential impact of the PES fire, check out DI’s blog post here: https://www.enverus.com/blog/shock-waves-from-philadelphia-refinery-explosion-felt-in-gasoline-and-crude-markets/.
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