- US crude oil inventories increased 4.9 MMBbl, according to the weekly EIA report. Gasoline and distillate inventories decreased 1.3 MMBbl and 0.1 MMBbl, respectively. Total petroleum inventories declined 0.2 MMBbl. US crude oil production was flat from the previous week. Crude oil imports were up 102 MBbl/d versus the week prior, to an average of 7.6 MMBbl/d.
- Prices continued declines, with a lower close for the seventh consecutive week. The WTI market has capitulated to bearish territory due to increasing supply from OPEC, Russia, and the US coupled with global demand concerns. The reluctance from the Trump administration to address the death of journalist Jamal Khashoggi removed concerns that Saudi Arabia would consider politically driven supply cuts.
- Russia’s oil minister, Alexander Novak, suggested it was too early to decide on supply cuts, and OPEC will discuss potential supply cuts at the upcoming Vienna meeting on December 6. The fact that prices seemed to ignore this potential and continue declines signals a general bearish market sentiment.
- The latest CFTC report is delayed due to the holiday. Expect additional liquidation by the speculative longs and additions to the speculative shorts.
- The extensions downward have taken prices well below support. On Friday, prices were three standard deviations below the 20-week moving average. This negative pressure also took momentum indicators into extreme oversold levels not seen since the price collapse in August 2015. History confirms that when WTI extends into extreme levels, a countertrade is likely to occur in the near term. If additional declines materialize, expect the lows from October 2017 ($49.18/Bbl) and August 2017 ($45.58/Bbl) to find buyers. Should a countertrade materialize, last week’s high ($57.44/Bbl), up to the previous week’s high ($61.28/Bbl), will limit gains. Drillinginfo continues to believe the long-term range for prices will occur between $60 and $65 for an extended period, with the near-term market trading within the $51-$61/Bbl range.
- Dry production increased 0.43 Bcf/d last week, with most of the gains from the Gulf and Southern regions. Canadian imports increased 0.07 Bcf/d.
- Moderating weather last week brought declines in the primary market sectors. Res/Com, Power, and Industrial demand fell 2.18 Bcf/d, 4.77 Bcf/d, and 0.19 Bcf/d, respectively. LNG exports were flat on the week, while Mexican exports decreased 0.09 Bcf/d. Total supply was up 0.50 Bcf/d, while total demand decreased 7.84 Bcf/d.
- The storage report last week came in with a withdrawal of 134 Bcf. The release sent prices up to $4.75 but fell short of setting the high for the week ($4.86). By the end of the day, prices retreated below the price level when the report was released.
- With the CFTC report delayed due to the holiday, the accuracy of the reports of hedge funds being caught short in natural gas and long crude, which were published in the prior week, cannot be verified. Last week’s action promptly tested the higher side of recent trade ($4.779) only to fall and retrace a majority of the gains. Trade settled into a range between $4.864 and $4.117 for the week. The consolidative action relieved some of the extremely overbought readings in the momentum indicators, but these indicators remain overbought by historical standards.
- Trade, this time of the year, revolves around the weather forecasts, as traders are keenly aware of the supply/demand balance. Should the longer-range forecasts moderate from the recent cold weather, then additional pressure on prices will continue. Should they continue delivering additional below-normal temperatures in the Northeast and Midcon regions, price strength will continue.
- With this fundamental relationship as a background, this week’s price action should continue the volatile trade of the last few weeks, especially with the expiration of the December contract on Wednesday. Expect declines to $3.90 to be met with buying, initially, and the highs from $4.30 to $4.56 to be sold.
- Earlier this month, Energy Transfer and their subsidiary Lone Star announced plans to construct a fractionation facility at Mont Belvieu, as well as to expand the Lone Star Express Pipeline NGL takeaway capacity out of the Permian. The 150 MBbl/d fractionator is scheduled to be operational Q1’20 and will be Lone Star’s seventh frac. The company’s fifth frac was placed in service in July, and their sixth is expected to be placed in service in Q1’19.
- The EIA reported a draw of 2.0 MMBbl in this past week’s inventories. Propane stocks now sit at 81.8 MMBbl, approximately 7.1 MMBbl higher than this time last year and 2.2 MMBbl lower than the five-year average.
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