- US crude oil inventories increased by 3.2 MMBbl, according to the weekly EIA report. Gasoline and distillate inventories decreased 3.2 MMBbl and 4.1 MMBbl, respectively. Total petroleum inventories declined 6.4 MMBbl. US crude oil production increased 300 MBbl/d from the previous week as offshore recovered from weather related issues. Crude oil imports were down 334 MBbl/d to an average of 7.3 MMBbl/d versus the week prior.
- Prices started the week lower and the inventory report brought a brief slow-down in the declines due to the decline in total petroleum inventories. However, the report could not stop the selling, and prices finished the day lower.
- The market is evaluating the rapidly increasing output from Saudi Arabia and Russia as well as recent gains in output from Nigeria and Libya. The market has been, and continues to be, oversupplied. Additional bearish factors include the continuing growth in US production and the global economic slow-down. On Friday, the US government added more pressure announcing it will temporarily allow some countries (including India, South Korea, and Turkey) to keep importing Iranian oil.
- The WTI market has virtually flipped from being a speculator driven bull market (taking prices to highs in October) to a fundamentally oversupplied market. The latest CFTC report showed the Managed Money long positions continuing to liquidate, disposing of 14,053 contracts, while short positions decreased 1,114 contracts. Expect long positions to continue liquidation and shorts to add positions in the coming week’s report.
- Price declines last week are an example of speculative liquidation when expectations are not realized. Closing prices declined to just above the lows from last April at $62.03/Bbl. This sent momentum indicators into the extremely over-sold zone. A bounce may take prices back up to $66/Bbl, but the market has entered a “sell the rally” status. The 200-day average ($67.47/Bbl) will likely prove very strong resistance to any rally. Further declines will bring in the April lows ($62.03/Bbl), March lows ($59.95/Bbl), and the February lows ($58.07/Bbl).
- Drillinginfo continues to believe the long-term range will occur between $60-$65/Bbl for an extended period of time, with potential brief extensions under $60/Bbl.
- Dry production increased last week 0.49 Bcf/d, with the majority of the gains from the Gulf and Southern regions. Canadian imports decreased 0.71 Bcf/d with new expansion pipelines offsetting the Canadian supplies.
- Heating demand decreased week-on-week, causing Res/Com to decrease 2.69 Bcf/d. Power demand also fell 0.73 Bcf/d. Industrial demand decreased 0.41 Bcf/d. LNG and Mexican exports increased 0.02 Bcf/d and 0.03 Bcf/d, respectively. Thus, totals have supply dropping 0.22 Bcf/d and demand falling 4.08 Bcf/d.
- The storage report last week came in with an injection of 48 Bcf. We expect EIA to report a stronger injection this week.
- According to the CFTC report (dated October 30), the Managed Money long position decreased by 15,041 contracts, while the short positions increased by 4,430 contracts. Going forward into the winter, expect daily fluctuations in these positions based on changes ins the weather forecast.
- Last week prices tested well-defined support at $3.11. The expiring November contract followed the recent two-year trend of rising during expiration. Subsequently, the December contract tried to test support, but only reached $3.166 twice. The late-week rally took prices over two standard deviations above the 20-week average and to the highest weekly close since last January. This rally exhibited the highest volume since the breakout in the first week of October. However, momentum indicators were not showing an extreme over-bought condition at the close last week. Expect an extension of the rally early this week.
- An extension of the gains made last week should have methodically taken prices to the highs from early October at $3.368 and continue through the May ’17 high ($3.431) and January ’18 high ($3.661). However, due to bullish changes in the weather forecasts over the weekend, traders were caught short and the early trade today has eclipsed May ’17 highs. Look for a consolidation of the gains throughout the week, perhaps declining to the May ’17 highs. Tests of support and consolidation will be in the $3.43 area and then the early October ‘18 high at $3.368.
- Several midstream players reported earnings this past week, and company level NGL volume and margin records were broken despite fractionation and pipeline constraints. Almost all of them have projects in the queue to relieve these infrastructure constraints.
- ONEOK reported a 5% increase in NGL volumes fractionated and a 6% increase in volumes gathered QoQ. The company also expanded fractionation in Kansas by 20 MBbl/d, which complements related upgrades to the Elk Creek pipeline to accommodate heavier NGL barrels out of the Williston. All other ONEOK NGL projects are expected to be on time, including Sterling III, Elk Creek, and Arbuckle II – all of which will provide more of a liquid path from the Williston through the Mid Continent and down to Mont Belvieu.
- Enterprise Products Partners mentioned that they are not done building takeaway out of the Permian. The company is also putting themselves into a position to convert an NGL pipeline to crude service when Shin Oak is placed in service. The Shin Oak pipeline will carry a maximum of 550 MBbl/d of NGLs from the Permian to Mont Belvieu and will commission in 2H ’19.
- MPLX mentioned that the Northeast is bottlenecked due to the delay in Mariner East 2. This is contrary to what E&Ps in the Northeast are disclosing. MPLX also hinted that they continue to consider NGL takeaway out of the Permian in the future, as they already have announced natural gas and crude projects out of the basin.
- The EIA reported a build of 1.0 MMBbl in this past week’s inventories. Propane stocks now sit at 83.0 MMBbl, approximately 5.4 MMBbl higher than at this time last year and 2.9 MMBbl lower than the five-year average.