- US crude oil inventories decreased by 2.1 MMBbl, according to the weekly EIA report. Gasoline inventories decreased 1.7 MMBbl, while distillates inventories increased 0.8 MMBbl. Total petroleum inventories showed a slight decline of 0.4 MMBbl. US crude oil production was estimated to be up 100 MBbl/d. Crude oil imports were up 433 MBbl/d to an average of 8.0 MMBbl/d versus the week prior.
- The bullish bias to the WTI trade continued last week with headlines indicating that Saudi Arabia would be comfortable with Brent prices remaining around the $80.00/Bbl level. This announcement showed that the Kingdom may not be so eager to raise production to fill in the gap from Iran and Venezuela. The OPEC and non-OPEC Joint Technical Committee meeting held this past weekend stopped short of promising any additional volumes. Saudi Energy Minister Khalid Al-Falih was quoted: “Our plan is to meet demand. … Our customers are receiving all of the barrels they want.” The Kingdom is expecting to pump more in September and increase again in October.
- Even with the positive bias to prices, there remains significant doubt about the duration of any sustained run in prices. The trade dispute is becoming more heated between the US and China. President Donald Trump already announced the 10% duties on $200 billion in Chinese products that come into effect Sept. 24. The president also threatened China that if they should retaliate, there would be an additional $267 billion subject to tariffs. These tariffs and potential retaliation bring tremendous uncertainty to the market and will continue to place pressure on prices due to the detrimental effects on global demand.
- According to the latest CFTC report, the Managed Money long positions showed caution by reducing their positions by 20,773 contracts. With the expiration of the October contract last week, it is no surprise that the Merchant sector reduced both their long and short contract positions.
- Prices did break above the $71/Bbl level and closed one day above that resistance area. However, from that close above, the market found sellers and closed the week just below that threshold, as prices retraced off the failed breakout. This volatility within the defined range will continue until the market develops a sense of what the supply and demand balance will look like longer term. Price declines will meet buying associated with the 200-day moving average (currently at $65.91/Bbl), which has been a consistent buying opportunity since last fall. The market needs additional bullish headlines to foster gains up to the June 2018 highs at $75/Bbl. The outcome of the weekend’s OPEC meeting may bring some early strength to price but was not unexpected. When fundamental realities start to kick in, prices are likely to consolidate into a lower range. With the quota easement, continued US production growth, and fears of weaker demand growth, Drillinginfo believes the long-term range will occur between $58-$65/Bbl for an extended period of time.
- Natural gas dry production gained 0.39 Bcf/d, producing yet another record weekly average, with the week averaging 83.89 Bcf/d. The primary regions for the gains are Texas (+0.25 Bcf/d) and the GoM (+0.12 Bcf/d). Canadian Imports also rose 0.40 Bcf/d.
- Late summer heat had US power demand up 5.24 Bcf/d on the week, while Res/Com declined 1.22 Bcf/d and industrial demand declined by 0.26 Bcf/d. LNG exports declined 0.27 Bcf/d on average for the week, and Mexican Exports were up slightly, gaining 0.02 Bcf/d. These events left the totals for the week showing the market gaining 0.80 Bcf/d in total supply while total demand gained 3.94 Bcf/d.
- The storage report last week came in with an injection of 86 Bcf. The data release brought some initial weakness, but could not stop the rally from resuming. The supply/demand balance indicates that this week’s injection should be weaker than last week.
- According to the CFTC report (dated Sept. 18), the Managed Money long positions (speculators) increased positions by 13,631 contracts while the Managed Money short positions also increased positions by 16,999 contracts. The day of resistance breaking gains (breaking the 200-day moving average and the 20-week moving average) was Tuesday, which is incorporated in this release.
- The rally last week may be starting to imply the concern the market has with the lower-than-average inventory levels. The weekly average production levels continue to set record levels each week, but the impact on storage inventories continues to lag and is not having the expected impact on price direction. When markets don’t go down when they are supposed to, they are going to rise, sometimes violently. Regardless of last weeks price gains, the market continues to trade in a range environment ($2.70-$2.99). Should those summer month highs break, then the target will be the June high of $3.053. Until prices garner the support to close above the July and August highs, the range remains intact, and prices will likely decline to test the well-defined support around $2.75.
- Ethane prices hit 61 cents per gallon last week, the highest in more than six years. Prices are supported by record exports and cracker consumption (especially after Exxon’s Baytown cracker commissioning in late July). Increased economics has increased recovery, which has caused some infrastructure constraints. Due to the fractionation constraints in the market, production at the tailgate of the plants, or total ethane recovery, has a ceiling. Ethane rejection, or selling ethane in the gas stream, increases in maxed-out capacity situations in order to make room for heavier liquids. All these factors are contributing to the increase in prices.
- The spread between Mont Belvieu and Conway ethane and propane mix is increasing to levels not seen since 2011, with the spread at ~30 cents. Mont Belvieu prices, as more of the international hub, are tied closely to exports and petrochemical demand, and Conway prices relate more to crop drying, commercial demand, traditional heating demand, etc. The past 5 years has seen the spread range from ~0-9 cents. This further accentuates not only the lack of infrastructure between the two to close the current gap, but also reiterates that increased export and petrochemical demand is contributing to the price rally we are seeing in the Gulf Coast.
- The EIA reported a small build of 0.1 MMBbl in this past week’s inventories. Propane stocks now sit at 74.8 MMBbl, approximately 7.4 lower than at this time last year and 8.9 MMBbl lower than the 5-year average.