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 large decrease of 9.6 MMBbl last week, according to the weekly EIA report. Gasoline inventories decreased 4.6 MMBbl, and distillate inventories decreased 4.1 MMBbl. Total petroleum inventories showed another significant decrease, falling 12.6 MMBbl. US crude oil production increased 100 MBbl/d compared with the previous week (per EIA). Crude oil imports were up 0.19 MMBbl/d to an average of 6.9 MMBbl/d versus the week prior.
- WTI prices continued their climb, as the supply cuts that OPEC and non-OPEC have provided some support for traders to increase positions. These reductions got additional positive news last week as the Joint Ministerial Monitoring Committee (JMMC) stated that the cuts had been met with a 90% compliance level in February. The JMMC decided to cancel the upcoming meeting in April, with the market fundamentals still pointing to an oversupplied market. This will push additional supply cut decisions to the second half of the year, at the OPEC meeting in Vienna on June 25-26. Both Russia and Saudi Arabia have agreed to continue the cuts, and possibly deepen them beyond the 1.2 MMBbl/d level, until June to bring balance to the market.
- Another element that has supported the bullish price gains is the annual strength in the gasoline market as traders eye the upcoming driving season and demand gains in the US. From the chart below, it is quite apparent that the recovery and meteoric rise in the gasoline (RBOB) price since the first of the year has had a positive impact on WTI prices.
- The recent rise in gasoline prices has been spurred by the speculative sector trading, and the following chart is a good representation of the growth in positions by the managed money long sector (rising nearly 25%).
- Whether the gains in gasoline continue to support WTI in the future is unknown, but the continued declines in exports from Venezuela and the supply cuts should support any major collapse in WTI prices. The CFTC report showing positions as of March 19 displayed a significant shift in the trader’s perspective, as the managed money long component significantly increased speculative length by 42,797 from the previous week, while the short component was forced to cover 12,060 contracts as prices broke and held above the resistance area at $57.96/Bbl the previous week.
- The bullish inventory data release, the price gains in gasoline and the positive news on the OPEC cuts were creating a bullish bias to trade until the economic data came out on Friday, showing weaker manufacturing growth in Germany and France. This brought a pause to the bullish run, sending prices lower in WTI and equity markets. The supply management programs are supporting prices, but the key to how far and high WTI will trade continues to be controlled by global economic activities and the lingering questions surrounding any successful trade negotiations between the US and China.
- The trade jumped, tested and broke above the $60.00/Bbl area briefly, only to find significant selling. Whether this price enticed producers to hedge or profit motives had been achieved, the decline on the disappointing economic news was volatile, taking prices down to $58.28/Bbl. Momentum indicators are still positive for the coming week, but are approaching overbought levels. Both volume and open interest were down, which also reflects the tepid nature of the gains. With $60.00/Bbl having been achieved on the existing news in the market, further advances will likely need a new catalyst. Without such a catalyst, a consolidation phase to WTI trade should be expected, with the high side around $60.00/Bbl and a potential retracement back to the breakout area around $57.96/Bbl, and possibly down to $55.00/Bbl.
- Natural gas dry production increased 0.24 Bcf/d. Canadian imports increased 0.26 Bcf/d.
- Res/Com demand gained 1.43 Bcf/d, while Power and Industrial demand gained 0.33 Bcf/d and 0.51 Bcf/d, respectively. LNG exports gained 0.11 Bcf/d on the week, while Mexican exports declined 0.15 Bcf/d. For the week, total supply gained 0.49 Bcf/d while total demand increased 2.31 Bcf/d.
- The storage report last week came in with a withdrawal of 47 Bcf. Total inventories are now 315 Bcf below last year and 556 Bcf below the five-year average.
- Prices started the week with a bid, taking prices back up to the well-defined resistance at $2.90. After failing to garner the additional support to break that resistance, prices spent the end of the week retracing down, closing the gap from late February at $2.726. Price behavior continues to follow the script that was written during spring 2018, marked by an inability to break out above the resistance before retracing back into the defined range.
- The CFTC report (as of March 19) showed the managed money long sector increasing positions by 10,580 contracts, while the short position also increased by 4,225 contracts in the past week. The speculative elements in the market continue to show a lack of commitment to long-term direction despite the fundamental data showing strong production year-over-year.
- Market internals reflect the noncommitment to directional bias, with the momentum indicators being neutral to slightly bearish for the coming week. Volume was below the previous week’s averages, with open interest showing a slight decrease, which would be expected with the prompt contract expiring.
- Expect the weakness from Friday to extend into this week. With early-morning trade having closed the gap, expect another challenge to the support early this week. A successful decline through that support may take prices down to test the $2.64 area. The market will need a catalyst to break down through the range that has been established. For prices to test the lows established on February 7 ($2.549) and February 15 ($2.543), the speculative short sector will have to shoulder the selling load, as the commercial sector will not be selling at the lows. This area between $2.56 and $2.52 has held all declines since 2016.
- There’s little point in looking for weather forecasts to provide the support they have for the past month. That said, should prices garner some support, the first area of selling will be found at the recent highs of the month, between $2.857 and $2.908. For more than two years, prices have found a rally toward expiration (Wednesday of the coming week), so expect some sort of rally after the initial declines.
- Prices were mainly down last week. Ethane dropped 11% week-over-week, falling $0.032, to $0.256. Propane was down $0.011, to $0.673. Normal butane was down $0.029, to $0.767, and isobutane was down $0.007, to $0.847. Natural gasoline was the only increase on the week, gaining $0.064 to reach $1.305.
- US propane stocks decreased ~1.2 MMBbl the week ending March 15. Stocks now sit at 51.1 MMBbl, roughly 14.4 MMBbl and 6.8 MMBbl higher than the same week for March 2018 and March 2017, respectively.
- Waterborne imports of crude oil to the United States remained low this week, with PADD’s 1,3 and 5 all declining from the previous week’s levels. Imports to PADD 3 are currently registering nearly 1.4 million barrels per day, while PADD 1 is around 625,000 barrels a day and PADD 5 is around 870,000.
- Imports via LOOP represented more than 37% of PADD 3’s imports, and much of that was Kuwaiti crude. Kuwait imports, which have been appearing less frequently to US shores, seem to be resurgent this month, with the outright quantity of imports from that country already reaching the highest level since August 2017. There were no imports of Venezuelan crude oil to the US for the week, as sanctions continue to bite.
- Houston Fuel Oil Terminal took in 11% of total imports for the week despite the fire raging at ITC, right across the Houston Ship Channel.
- After spiking last week, gasoline imports fell this week and are back to more normal levels.
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