• US crude oil inventories decreased by 3.6 MMBbl, according to the weekly EIA report. Inventories of gasoline and distillates increased by 3.4 MMBbl and 2.7 MMBbl respectively. The most important number to keep an eye on, total petroleum inventories, had a large increase of 6.6 MMBbl. US production continued to build with an increase of 13 MBbl/d last week. Imports increased by 1.1 MBbl/d to an average of 8.9 MMBbl/d versus the previous week.
• Russia announced last week that oil output could climb to the highest rate in 30 years if quotas are not extended. OPEC’s next meeting will take place on May 25. An extension of the production cuts and continued high compliance are required to bring inventories back to normal levels from prior to the price crash, especially with the IEA’s recent downward revision for demand growth in 2017.
• The CFTC report showed speculative length from the managed money sector declined 47,948 contracts (over 13%) as WTI prices declined from $52.85/Bbl down to $48.87/Bbl between April 18-25. Concurrent with this selling was the increase of short positions by the managed money sector of 24,207 contracts (nearly a 33% increase). This CFTC report provided an important indicator for the near term price action for WTI. Without any supportive news, participants are starting to signal that additional declines should be expected. As discussed in previous reports, the fundamental data supports a price negative bias as US production continues to grow and global inventories remain stubbornly high. From a technical standpoint, additional declines should be expected. Last week prices broke down through the 200-day moving average but managed to close the week just above the closely watched average. Drillinginfo expects declines in the coming weeks to test the lows from trade in March at $47.00/Bbl. While prices tested this area three times during March, a test of this level in the coming weeks will be the first major test since the brief short covering rally.
• Natural gas dry production increased slightly last week by 70 MMcf/d and continues well below last year’s levels by over 2 Bcf/d. As prices increase, additional and more significant gains in production are expected in order to reach storage levels above 3.6 Tcf in late October.
• On the demand side, some late season cooling had Res/com demand up 1.29 Bcf/d at the expense of power demand, which declined 810 MMcf/d. LNG exports continued to be volatile dropping 580 MMcf/d due to a short-term maintenance, which was completed on Friday. LNG exports will continue to be volatile but additional gains should be expected during the remaining summer injection season. With the maintenance finished on the NET Mexico pipeline, Mexico exports rallied back, gaining 1.15 Bcf/d week-on-week. This level may start to increase as additional pipelines come online this summer.
• The storage report last week came in a little above expectations with an injection of 74 Bcf. Based on current weather forecasts, this may be the largest injection over the next few weeks.
• For months now, Drillinginfo has been calling for prices to rise in order to facilitate production to climb back above 72 Bcf/d. This growth is not currently happening and will force the market to re-asses the upcoming summer injection activity.
• Price action last week brought some early losses extending the previous week’s declines, however, the expiring May contract found support just above $3.00 (similar to April expiration). It rallied into expiration, trading to a high at $3.17, before expiring at $3.142/MMBtu. As the June contract took over as prompt (with an $0.11 premium) prices fell short of the expiration gap, and then increased again to close the week at $3.276, which is the highest weekly close since late January. Though the rally fell short of the early April high of $3.347, the price gains have taken the bias from neutral/negative to a neutral/positive rating. The longer the expiration gap remains in place the more formidable the support around last week’s test becomes (June traded down to $3.207 while testing the expiration gap).
• The CFTC data released April 25th provided little changes in the primary positions of the participants. Managed Money remained long and were offset by the short positions of the Other Reportables. Total open interest continues to grow week over week (bullish) while volume declined week over week (bearish). This market may trade sideways in the near term as participants decide on a directional bias for the upcoming summer.
NGLs – Propane
• Inventories increased 8 MBbl in last week’s EIA report. Although small, it is the first injection seen since September, attributed to warmer spring weather and a drop in exports. Propane stocks now sit at 39.7 MMBbl, roughly 31.5 MMBbl lower than this time last year. However, propane stocks are still well above the five-year average of 35.4 MMBbl for this time of year prior to 2015 (before the crude price crash). The high level of exports has pushed the first injection out further this year, marking this the latest first injection seen in history.
• As expected, prices dropped 4% due to the first injection of the season. Drillinginfo expects this trend to continue as we move into the summer months and demand for propane declines.
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