- US crude oil inventories increased by 1.9 MMBbl, according to the weekly EIA report. Gasoline inventories increased 1.5 MMBbl while distillates inventories decreased 2.2 MMBbl/d. Total petroleum inventories showed an increase of 4.5 MMBbl. US crude oil production was estimated to be up 100 MBbl/d. Crude oil imports were down 222 MBbl/d to an average of 7.8 MMBbl/d versus the week prior.
- The bearish inventory brought a brief correction to the week’s bullish bias before the bulls gained control again and closed the week at the highest level since last July, when WTI prices touched $75.27. Brent oil prices hit a four-year high last week as the trade continues to be concerned about the upcoming sanctions on Iran (export levels from Iran are already declining) and the results from the OPEC and non-OPEC meeting in Algeria, where there was no formal agreement on any additional supply increases to offset the declines from Iran and Venezuela. This news went against the wishes of the Trump administration, which had advocated that OPEC and Saudi Arabia should increase production to bring prices down and stabilize them at a lower level. Trump’s concern about high oil prices and how they may affect the global economy spilled into the press in several comments about OPEC and its behavior. Focused so acutely on this potential issue, Trump called King Salman bin Abdulaziz on Saturday to discuss “issues of regional concern,” though no details of the conversation were released.
- The bullish run in WTI will likely continue, flying against the doubt that exists from continuing trade disputes between China and the US. While these events may limit global demand, unchecked runs in WTI and Brent will also have a deleterious impact on longer-term global demand. The trade will be listening this week for any additional comments or directives from Trump or the Saudi energy minister (speaking in Morocco and Russia) this week about potential actions that may be taken to battle the price run.
- Additional gains in price will come from further speculation from the various funds. According to the latest CFTC report (dated Sept. 25th), the Managed Money long positions showed another gain by increasing positions in 5,600 contracts. The total level of open interest by the speculative sector is well below the levels attained in July.
- Prices continued to increase throughout the week as they closed the week at $73.25. While the inventory data brought a brief setback, the trade quickly regained its positive focus. The end of the week left prices nearing overbought levels on the momentum indicators but, more importantly, the gains were met on much lower volume as the week moved along. Perhaps this reflects concern about how high the run will take prices, but the market seems to be indicating a retest of the July highs. Any actions from the Trump administration or changes in the position of Saudi Arabia could bring a drastic correction to the recent run. The potential for volatility has risen with this price run and will continue until the market develops a less speculative and more fundamentally driven assessment. The large range in prices since July has the high at $75.27 and the low end of the range at the 200-day moving average (currently at $66.29 and rising). When all the issues settle out and the uncertainty diminishes, prices are likely to consolidate into a lower range. The continued US production growth and the fears of weaker demand growth lead Drillinginfo to believe the long-term range will occur between $58-$65 for an extended period of time.
- Natural gas dry production gained 0.51 Bcf/d, yet another record weekly average at 84.43 Bcf/d. The primary regions for the gains were the Northeast and the Gulf of Mexico supply zones. Canadian imports decreased 0.10 Bcf/d.
- The late summer heat abated last week and the power demand fell 6.12 Bcf/d, while Res/Com increased 2.64 Bcf/d and industrial demand increased by 0.48 Bcf/d. LNG exports declined by 0.11 Bcf/d on average for the week, and Mexican exports were down slightly, declining 0.08 Bcf/d. These events left the totals for the week showing the market gaining 0.41 Bcf/d in total supply while total demand lost 3.52 Bcf/d.
- The storage report last week came in with an injection of 46 Bcf, which was below expectations. Prices rallied directly after the release and held the gains through the day.
- According to the CFTC report (dated Sept. 25th), the Managed Money long position (speculators) increased by 25,631 contracts while the Managed Money short positions decreased by 39,690 contracts. This shift is significant as it is becoming clear that the speculative interests are looking for prices to continue to advance in the upcoming weeks.
- Since the rally broke above major resistance in the previous week and then last week the expansion of prices topped June highs, the market has signaled a change in perspective. It is becoming evident that the storage levels are starting to concern most of the trade. Last week’s gains were made with higher volume (above the 30-day average) and open interest declined, which should be expected during the expiration of the October contract. Watch this week for some consolidation trade in the range of $2.95-$3.12, as traders continue to digest the aforementioned fundamentals.
- ONEOK announced several infrastructure projects totaling $1.5 billion. The projects will assist with the current fractionation constraints at Mont Belvieu, an expansion of Arbuckle II, and a processing plant in Williston. The combination of growth projects will alleviate some of the constraints for the movement of NGLs from the Bakken and Mid Continent, and the Mid Continent down to Mont Belvieu. The company is already constructing the Elk Creek pipeline, running from the Williston to Conway, and the recently announced Arbuckle II, which is expanding from 400 to 500 MBbl/d, and capable of expanding to a total capacity of 1,000 MBbl/d. The new 125 MBbl/d fractionator adds to the 1,000 MBbl/d announced frac capacity in the area over the next 2.5 years. Despite the substantial anticipated capacity, the company believes the growth story of Mont Belvieu is compelling enough to consider a 6th fractionator. The projects will help alleviate the pricing disparity between the Conway to Mont Belvieu spread, as well as allow for increased ethane recovery to feed export demand.
- The EIA reported a build of 1.6 MMBbl in this past week’s inventories. Propane stocks now sit at 76.4 MMBbl, approximately 4.4 MMBbl lower than this time last year and 7.9 MMBbl lower than the 5-year average.
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