- US crude oil inventories increased by 6.5 MMBbl, according to the weekly EIA report. Gasoline inventories decreased 2.0 MMBbl while distillates inventories also decreased, falling 0.8 MMBbl/d. Total petroleum inventories showed a gain of 3.0 MMBbl. US crude oil production was estimated to be down 300 MBbl/d (per EIA) due to shut-ins in the Gulf associated with Hurricane Michael. Crude oil imports were up 218 MBbl/d to an average of 7.6 MMBbl/d versus the week prior.
- Prices started the week strong on the continuing bullish bias generated from the upcoming Iranian sanctions and the constant Venezuelan production declines. The Iranian sanctions continue to confuse the market due to speculation that some countries (India, China, Turkey and some EU countries) will continue importing Iranian crude in November. Exports from Iran in the first two weeks of October hovered around 1.5 MMBbl/d, down from 2.5 MMBbl/d in April.
- The disappearance of the Saudi journalist Khashoggi in Istanbul brought additional uncertainty to the market, as the incident increased tensions between US and Saudi Arabia. The Saudi’s originally denied any involvement in the disappearance, but later reversed, describing as the result of a fight in the embassy.
- The third consecutive week of inventory data releases showing gains in total petroleum inventories helped erase initial strength from earlier in the week.
- The latest CFTC report (dated Oct. 16) confirms that positions are changing. Managed-Money long positions decreased 27,665 contracts, while the short positions increased 19,460 contracts. The recent decline in prices has clearly brought a significant element of caution to the bullish fervor that drove the runs in late summer.
- Price declines last week were met with increasing volumes and the week closed below the commonly watched 20-week moving average. This action strongly suggests further declines should be expected early this week. Major support exists at the 200-day moving average which is now $67.32/Bbl.
- Any positive headlines regarding the impacts of the sanctions will likely allow for a test of the high end of the range between $75.28/Bbl and $76.90/Bbl.
- However, continued US production growth and the expansion of Russia and Saudi Arabia production combined with fears of weaker demand growth lead Drillinginfo to believe the long-term range will occur between $60/Bbl-$65/Bbl.
- Natural gas dry production decreased last week by 0.31 Bcf/d, along with decreased Canadian imports, which fell 0.39 Bcf/d on the week.
- Seasonal changes are driving demand components. Power demand declined by 4.09 Bcf/d, while res/com and industrial demand increased by 6.86 Bcf/d and 0.82 Bcf/d, respectively. LNG exports increased 0.49 Bcf/d, with the Cove Point maintenance completed. Mexican exports increased by 0.05 Bcf/d. These events left the market losing 0.70 Bcf/d in supply, while demand gained 4.48 Bcf/d.
- The storage report last week came in with an injection of 81 Bcf. This had a bearish impact on the market, which opened weaker and remained down after the release.
- According to the CFTC report (dated Oct. 16), the Managed-Money long positions decreased by 11,084 contracts. The short positions also decreased by 2,793 contracts. This sort of profit-taking action, as prices rallied early last week, likely signals that the highs for the November contract are in place.
- The brief price run early last week was met with declining volumes and declining open interest (largely due to profit taking). However, with the below-average temperatures forecasted near term, storage injections may be limited.
- Expect downside tests of the breakout area around $3.11, which may extend down to $3.05. Should the market commit to extending the rally, the highs from last week are the initial target, with possible extension up to the May high of $3.431.
- EnLink Midstream, LLC, will acquire EnLink Midstream Partners LP in a simplification transaction. The transaction is expected to close in the first quarter of 2019 and will create a combined midstream company with a $13 billion market cap.
- With earnings season starting, we will look for commentary on infrastructure constraints and updates from both midstream and E&P groups. Additionally, we will look at pricing-related discussions on increased ethane pricing and spot fractionation costs. SM Energy preliminarily reported a 27% increase in NGL volumes in the Eagle Ford as they elected to recover and take advantage of pricing conditions.
- The EIA reported a build of 2.0 MMBbl in this past week’s inventories. Propane stocks now sit at approximately 82.3 MMBbl.
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