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 a decrease of 3.9 MMBbl last week, according to the weekly EIA report. Gasoline inventories decreased 4.6 MMBbl and distillate inventories increased 0.4 MMBbl. Total petroleum inventories showed a significant decline of 10.2 MMBbl. US crude oil production was down 100 MBbl/d compared to the previous week (per EIA). Crude oil imports were down 0.26 MMBbl/d to an average of 6.7 MMBbl/d versus the week prior.
- WTI had a bullish week with a breakout above the previous level of resistance that had surrounded the November ’18 highs at $57.96/Bbl. Much of the news fed the optimism early in the week, with Saudi Arabia confirming its voluntary plans to cut supplies further. The Kingdom announced that oil exports will be cut below 7.0 MMBbl/d while output will be kept below 10.0 MMBbl/d to alleviate the supply imbalance. The Joint Ministerial Monitoring Committee, which monitors compliance levels of OPEC and non-OPEC countries, will be meeting on March 18. However, it is doubtful that any adjustments to output will be announced at this meeting, but rather create the background for discussions at the upcoming meeting in June.
- Bullish news continues with exports from Venezuela continuing to decline with the power outages and the shutdown of the main crude export terminal and processing complex. These declines may be short-lived, but the current turmoil in Venezuela makes it difficult to assess whether the country can fully resume operations.
- The bullish inventory release, especially the estimated declines in US production, garnered the support necessary to break through the long-held resistance and reach $58.95/Bbl on Friday. Prices will continue to have imposed limits to the gains as the trade discussions between the US and China drag on without any settlement in sight. Without a confirming agreement in place, the market is subject to the potential of continuing global economic weakness, which will put a lid on global demand and gains in crude prices.
- The CFTC report showing positions as of March 12 continues the recent trend, with the managed money short sector reducing exposure by covering 5,287 contracts while the long sector marginally increased length by 2,454 contracts. With the breakout above $58.00/Bbl last week, expect additional reduction of the speculative short sector this week. The speculative long sector has not fully embraced the long-term potential gains, and this hesitancy is largely due to the uncertainty in the tariff negotiations and the declining global economic growth.
- The trade had a positive bias all week, with most of the gains occurring with the inventory release. While maintaining a positive bias, market internals confirm the unsettled commitment as open interest declined week over week and volumes declined after the breakout on Wednesday, as there was little follow-through to the gains. Momentum indicators are still positive for the coming week, and extension to the Friday highs should be expected early this week. Gains should take aim at $60.00/Bbl, and will likely hit significant selling over $59.00/Bbl. Should prices take a consolidation pause to the gains, a retracement and a range development could be expected between $55.00/Bbl as the low and the highs from last week, or what is achieved on a gain extension this week being the high end.
- Dry gas production increased 0.42 Bcf/d, with most of the gain coming from Texas and Oklahoma recovering from freeze-offs. Canadian imports decreased 0.81 Bcf/d.
- Res/Com demand fell 19.72 Bcf/d week over week, while Power and Industrial demand fell 3.75 and 2.13 Bcf/d, respectively. LNG exports gained 0.22 Bcf/d on the week, while Mexican exports increased 0.04 Bcf/d. Total supply dropped 0.39 Bcf/d, while total demand decreased 26.14 Bcf/d for the week.
- The storage report last week came in with a draw of 204 Bcf. Total inventories are now 359 Bcf below last year and 569 Bcf below the five-year average.
- Prices started the week down as it became more apparent that additional forecasts for colder temperatures would have limited impact on prices. The early week was spent trying to close the gap from weeks prior, but the declines fell short as traders rallied on the expectation of the bullish storage report. The trade seems to be similar to the 2018 trade action that spent the months of March, April and May consolidating between $2.53 and $2.869, before a slow rally took prices up just over $3.00 in the middle of June. However, last year’s end-of-winter low inventory was expected to be offset by additional production coming to market with new infrastructure. This year, storage will have even lower inventories, and additional production will be limited, with few infrastructure projects expected to come to market near term.
- The CFTC report (as of March 12) showed the managed money long sector increasing positions by 12,974 contracts; the short position also increased by 2,337 contracts last week. The speculative elements in the market are not unanimous in establishing near-term direction regardless of current production levels, likely setting a struggle for prices to extend very far in either direction for the near term.
- Prices spent the week consolidating in a range of $0.062, narrower than the previous week’s range of $0.084. Momentum indicators are neutral to slightly bearish for the coming week. Market internals had volume well below the previous week’s averages, with open interest showing a slight increase on the week.
- Expect the weakness on Friday to extend, creating a challenge to the gap between $2.732 and $2.726. Closure of that gap may take prices down to test the $2.64 area. For prices to test the lows established on February 7 of $2.549, and on February 15 of $2.543, the speculative short sector will have to become more active than it is currently showing. The area between $2.56 and $2.52 has held all declines since 2016.
- The weather forecasts, which have been driving the market gains of late, will now have a more diminutive effect on prices in the coming weeks. Should prices garner some support, the first area of selling will be found at the recent highs between $2.857 and $2.908.
- Prices were mainly up last week. Propane was up $0.002 to $0.684, normal butane was up $0.002 to $0.796, isobutane was up $0.031 to $0.854, and natural gasoline was up $0.019 to $1.241. Ethane was the only decrease week-over-week, falling $0.005 to $0.288.
- US propane stocks decreased ~1.2 MMBbl for the week ending March 8. Stocks now sit at 50.2 MMBbl, roughly 11.3 MMBbl and 5.7 MMBbl higher than the same week for March 2018 and March 2017, respectively.
- US waterborne crude imports remained low for the week ending March 15. Once again, PADD 3 imports were low, coming in just short of 1.6 MMBbl/d, and have remained well below 2.0 MMBbl/d since mid-February. PADD 1 imports dropped to 525 MBbl/d, while PADD 5 imports rose to 1.375 MMBbl/d. Prior to 2019, the EIA reported PADD 3 crude oil imports below the 2.0 MMBbl/d mark only five times since 1990.
- PADD 3 crude imports from Saudi Arabia have risen compared to the prior two months, and are currently near 275 MBbl/d. That’s far higher than the sub-100 MBbl/d level that we saw in January and February.
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