DI is enhancing its Week Ahead market commentary with our views on waterborne movements of crude and petroleum products. These insights are developed through our analysis of data obtained from US Customs and US Census Bureau. Future enhancements will include real time vessel tracking. For more information please contact us at [email protected]
- US crude oil inventories posted an increase of 7.1 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 4.2 MMBbl and 2.4 MMBbl, respectively. Total petroleum inventories showed a slight decrease of 0.4 MMBbl. US crude oil production was flat compared to the previous week (per EIA), and crude oil imports were up 1.08 MMBbl/d over the week prior, to an average of 7.0 MMBbl/d.
- Optimism opened the week for WTI prices, with hopes for a trade agreement between China and the US. Both parties seemed willing to reach a deal that would roll back US tariffs on at least $200 billion worth of Chinese goods, while China promised to end tariffs on the US. Both the OPEC-led supply cuts (with the potential for an extension of these cuts beyond June) and Russian Energy Minister Alexander Novak telling the press that Russia will bring its oil production down 228 MBbl/d from the October level, provided the market with a brief bullish bounce.
- The bearish inventory data release, and the news that Libya’s El Sharara oil field is restarting, which will bring back 300 MBbl/d, capped the bullish sentiment of OPEC reducing production to its lowest levels since 2015.
- By Friday, news from Chinese officials showed that February exports fell nearly 21% from last year, as the trade war with the US is having an impact on world demand. News that Chinese factory activity is the lowest in three years, and the US jobs report release showing some weakness in February job creation, caused additional price declines.
- The CFTC report has now been brought current with the release, showing positions as of March 5. The trend is the same as discussed previously, with the managed money short sector reducing exposure by covering 12,743 contracts, while the long sector increased its speculative length by 15,410 contracts.
- The negative news on Friday sent prices down over $2.00 and challenged the commonly watched 20-week moving average at $54.16 before finding solid support and rallying. Despite the bearish global economic data, prices closed last week higher than the previous week’s $55.86, at $56.07. The major area for selling remains at the high from last November, $57.96, with a break above likely to find $60.00. Further indications of weakness in global demand will likely send prices back to the 20-week moving average ($54.16 currently). A breakdown through this area will lead prices to the commonly traded 50-day moving average at $51.84.
- Natural gas dry production decreased 1.29 Bcf/d, primarily with declines in Texas and Oklahoma, while Canadian imports increased 0.66 Bcf/d week over week.
- Res/Com demand gained 6.92 Bcf/d, while Power and Industrial demand rose 1.27 Bcf/d and 0.75 Bcf/d, respectively. LNG exports dropped 0.19 Bcf/d on the week, while Mexican exports increased 0.05 Bcf/d. Total supply dropped 0.63 Bcf/d, while total demand gained 9.00 Bcf/d.
- The storage report last week came in with a draw of 149 Bcf. Total inventories are now 243 Bcf below last year and 464 Bcf below the five-year average. These variances to historical levels will continue this week with the demand increases noted last week.
- Prices spent the week consolidating in a narrow $0.084 range last week. There was no challenge to the gap between $2.732 and $2.726 from the previous week, as forecasts remained bullish for March demand. The models are forecasting a brief warmer period in the coming week, which may pressure prices near term. However, after the warm period, higher demand is expected to return.
- The CFTC report is now current with positions as of March 5. An interesting adjustment has been made over the last couple of weeks, as the managed money long sector (which had been liquidating positions) increased positions 18,037 contracts, while the short position declined (covered) 18,202 contracts in the last week.
- The speculative long sector re-entering the market and supporting prices leads to a potential conclusion that trade did form a double bottom formation, with the rebound off the lows established on February 7 ($2.549) and then with a retest and failure on February 15 ($2.543). Both declines represent tests of the lows that have held price declines since 2016.
- Whether the trade in March retests those lows from February remains to be seen. However, witnessing the short sector covering positions established in late January and February leads to the conclusion that the lows established in February, around $2.53, will hold declines near term. The trade may extend rallies to the March expiration highs at $2.908. Beyond that, resistance areas between $2.93 and $2.98 will find significant selling in the coming week.
- Enterprise announced that the Shin Oak NGL mainline has come online. This pipeline has an initial capacity of 250 MBbl/d and originates in Orla, Texas, in Reeves County, and delivers to the Enterprise NGL frac and storage facilities in Mont Belvieu. Once additional expansion projects on the pipeline are complete, it will be able to ship 550 MBbl/d. The full capacity is expected to be available during 4Q19.
- Prices bounced around among the products week over week. Ethane was up $0.005 to $0.293, and natural gasoline gained $0.160 to $1.222. Normal butane fell $0.011 to $0.794, and isobutane dropped $0.023 to $0.823. Propane was flat week over week.
- US propane stocks decreased ~2.0 MMBbl the week ending March 1. Stocks now sit at 51.4 MMBbl, roughly 10.3 MMBbl and 6.2 MMBbl higher than the same week for March 2018 and March 2017, respectively.
- Waterborne imports of crude increased in PADDs 1 and 3 last week while falling in PADD 5. This marks the second week in a row with significantly lower imports to the port of Houston, and the lowest weekly level since August 2018.
- Crude imports through LOOP, which show up as imports to Morgan City, Louisiana, were at zero for the second consecutive week. The importance of that facility as an import hub has dropped due to declining imports from Iraq and Saudi Arabia coupled with the increasing usage of the facility for exporting crude oil.
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