- US crude oil inventories posted an increase of 4.7 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories increased 3.7 MMBbl and 0.8 MMBbl, respectively. The total petroleum inventories showed a large increase of 16.8 MMBbl. US crude oil production increased 100 MBbl/d last week per EIA. Crude oil imports were down 669 MBbl/d to an average of 6.9 MMBbl/d versus the week prior.
- For the past month, the WTI price has struggled to balance the conflicting impacts of the end of waivers on Iranian crude imports and the declining growth in the global markets due to the US and China trade talks. Last week brought some additional clarity to the struggle.
- The geopolitical instability in the Gulf region, with armed attacks on vessels and infrastructure, and the restrictions on Iran’s oil exports have provided a floor for prices recently. Several times prices declined to the $60.00 area, only to be supported by news of events in the Middle East. However, last week the market endured another bearish inventory report, sending many bulls to the sidelines. The strength as of late has been built on the expectation that with the output restrictions supported by OPEC and Russia, inventories would become more balanced. The opposite of this expectation has occurred in the US. This along with the lack of new trade negotiations between the US and China have brought caution to the WTI trade.
- The current supply/demand situation will have an impact on the upcoming OPEC meeting with regard to any decision regarding supply cut continuations or lessening reductions. Expectations of this meeting will likely provide volatility to the trade as the meeting approaches. Saudi Arabia continues to reaffirm its commitment to a stable and balanced global crude market regardless of the effects of US sanctions on Iran and declining output from Venezuela.
- The CFTC report (positions as of May 21) had the Managed Money long component selling 26,868 contracts and the short position decreased positions slightly, covering just 1,063 contracts. It is likely that the long speculative trade sold additional positions later in the week as prices broke down through the key levels around $60.00.
- Price bias changed to slightly bearish with the breakdown after the inventory release. Market internals showed a decrease in open interest (on preliminary data from the CME), with slightly lower volume week on week. However, on Thursday, as prices broke down, volume was at the highest daily level since early April. Trade was cautious on Friday, with no follow-through downward, allowing prices to rebound going into the long weekend.
- The support area that held during late March and April will now find sellers for prices in the near term. A break back above that support area, on a daily close, will usher in a new range between $57.33 (last week’s low) and $63.81 (where price runs found selling last week).
- A follow-through on the breakdown will send prices to where they were in early March, between $56 and $57, which became the base for the recent run. While much of the long speculation was forced to cover last week (after the CFTC data), there remains a bid in the market due to the geopolitical unrest. The bullish element in trade will depend on the uncertainty around Iran’s production. It is likely that Saudi Arabia will counter price runs with additional output, as it has stated its goal is a stable oil market. For the coming holiday-shortened week, a consolidation period after the breakdown is likely, as the trade will need to digest the changing bias.
- Natural gas dry production showed a decline of 0.42 Bcf/d, while Canadian imports increased by 0.25 Bcf/d.
- Res/com and industrial demand fell 1.71 Bcf/d and 0.40 Bcf/d, respectively. Power demand has increased 2.70 Bcf/d as the market heads into the late spring season. LNG exports fell 0.24 Bcf/d, while Mexican exports increased 0.09 Bcf/d. These events left the totals for the week showing the market dropping 0.17 Bcf/d in supply while demand increased 0.44 Bcf/d.
- The storage report last week showed injections for the previous week at 100 Bcf. Total inventories are now 137 Bcf higher than at this time last year and 274 Bcf below the five-year average. With demand increasing and supply decreasing last week, expect a weaker storage injection reported this week.
- The CFTC report (as of May 21) showed the Managed Money long sector increasing positions by 872 contracts, while the short sector increased by 13,471 contracts. This has left the Managed Money short speculators with more short length than the Managed Money long speculators for the first time since December ’17. There is mounting evidence that the speculative short sector will take advantage of any probe of prices higher, between $2.68 and $2.70, to add to positions.
- Even though prices expanded the range higher last week (trading up to $2.70), the market internals maintain a consolidation nature, as the market trades between $2.52 and $2.70. Volume increased week over week, while open interest decreased (expected as expiration comes on Wednesday). Momentum indicators remain neutral.
- Prices remain in the recent range as the selling at the high end of the range took prices back down to major support ($2.56-$2.522). If the trend of the past two-plus years holds, it is likely that prices will find a bid sometime during the last two days of the June contract. Eventually, as in previous early summers, prices will garner enough support to break out of the range in the coming two months as we move toward peak power burn season. Currently, even though the bears sent prices to support, the selling runs into a plethora of buyers as the price moves below $2.56. This behavior should continue in the coming week. Price declines between the low for the June contract at $2.477 and the April low of $2.439 will find buyers. Rallies beyond $2.70 will be difficult to achieve in the next week.
- The winter strip has not challenged the lows occurring in late April, and a positive bias remains compared with the prompt contracts. This strip continues to be an indicator for prices during the summer as it reflects a midterm perception of where prices are headed.
NATURAL GAS LIQUIDS
- Enterprise Products Partners announced plans to extend its ethylene pipeline system into South Texas. This new pipeline expansion, known as the Baymark Pipeline, will originate near Bayport and will deliver to Markham, Texas. The new pipeline will be used to serve growing demand in the area, particularly from crackers and derivative plants. The pipeline is expected to be in service by 4Q2020.
- Most of the products showed a decline in prices week over week, except for ethane, which gained $0.002 to $0.225. Propane fell $0.05 to $0.541, normal butane dropped $0.037 to $0.598, isobutane was down $0.032 to $0.613, and natural gasoline was down $0.085 to $1.195.
- US propane stocks increased ~3.1 MMBbl the week ending May 17. Stocks now sit at 65.8 MMBbl, roughly 24.7 MMBbl and 22.1 MMBbl higher than the same week for 2018 and 2017, respectively.
- US waterborne imports of crude oil fell for the week ending May 24, according to Drillinginfo’s analysis of manifests from US Customs and Border Protection. This increase was mostly driven by a steep drop in imports to PADD 3. As of May 28, data showed PADD 3 imports stood at nearly 1.28 MMBbl/d for the week, while PADD 1 stood at nearly 800 MBbl/d and PADD 5 stood at 750 MBbl/d. The major contributor to the decline was a fall in Saudi imports, down to 70 MBbl/d. By contrast, PADD 3 imported more than 400 MBbl/d of crude from Saudi Arabia in May 2018. Imports from Mexico also fell, to nearly 370 MBbl/d, the lowest weekly total since April 2018.
- In last week’s Shipping piece, we wrote about the massive gasoline imports we had observed the previous week. This was confirmed in the EIA’s report on Wednesday. This week we are seeing a decline in gasoline imports to PADD 1, but the strength in PADD 5 imports continues, with more than 300 MBbl/d imported to the region. For more on PADD 5 gasoline imports, check out the following blog post: https://www.enverus.com/oil-gas/a-massive-swell-of-gasoline-imports-arrives-to-the-west-coast/
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