• US crude oil inventories increased by 0.1 MMBbl, according to the weekly EIA report. Gasoline and distillates posted withdrawals of 0.9 MMBbl and 0.2 MMBbl, respectively. Total petroleum inventories were up by 0.8 MMBbl. The US production estimate was down 100 MBbl/d while imports increased by 140 MBbl/d to an average of 8.1 MMBbl/d versus the previous week.
• The inventory report offered both bearish and bullish indicators this week. The declines in the gasoline and distillates was good news for the bulls while the increase in oil inventories and total petroleum inventories gave the bears some cover. Price action around the release showed losses and then gains as prices started a consistent rally off the release. Price will continue to respond to any news from the IEA or OPEC (discussed last week) and growing US production and the high rig count will continue to pressure price rallies.
• The price action in WTI last week behaved as discussed here in the Week Ahead report as the over sold condition was softened by a strong short covering rally taking prices higher each day. However, it is prudent to note that rallies generating from short covering come to a quick end when the shorts cease covering. The latest CFTC report confirmed 13,044 additional shorts entering the market prior to Wednesday. The report also showed speculative long positions increasing 8,728 contracts. Given the rising prices from Wednesday through the end of the week, expect the managed money short position to be lower in this week’s report. While the rally took WTI prices above $46/Bbl, the run will start facing serious resistance if it garners enough interest to take prices up to $47/Bbl. The well-defined support just below $43/Bbl will likely hold declines near term while the top end of the new range will likely be around $47/Bbl. As the market continues to work through the information and digest price movements, Drillinginfo expects WTI to enter a more volatile period (3-4 months) for trade with the potential test of August 2016 lows ($39/Bbl) and short covering rallies. The primary range for WTI should remain between $43-$47/Bbl for the near term.
• Natural gas dry production increased by 530 MMcf/d, primarily the result of wells coming back online after the shut-ins from Tropical Storm Cindy. Production trends that showed improvement during May did not continue into June with dry gas production averaging 71.6 Bc/d. June production was only up 300 MMcf/d from May, compared to the 1.1 Bcf/d increase in May over April.
• On the demand side, as temperatures came off last week, power demand was down 1.2 Bcf/d while Res/Com rose 590 MMcf/d. Mexico exports rose 300 MMcf/d on the week (establishing a new record level) and LNG exports increased 170 MMcf/d but remain below 2 Bcf/d.
• The storage report last week came in well below market expectations with an injection of 46 Bcf. Forecasts indicate that injections will tend to be higher than 2016 but still lag the 5-year average.
• The liquidation of long positions has come to an end as the CFTC report (June 27) showed that the Managed Money long position increased by 14,926 contracts as speculators started to initiate positions when prices declined under $2.95. The speculative short position decreased by 11,621 contracts (likely due to the expiring July contract). The market continues to maintain a neutral/negative bias and will likely try to re-visit support zones in the mid $2.80’s near term. There was a unique technical pattern developing around $2.971 that may bring temporary support to prices (as it did on Friday) but the trend is clearly neutral/negative. Prices are liable to trade around the latest weather forecast which have proved inconsistent in the longer-range outlooks. Look for volatile trade on forecast changes with the likelihood of additional shorts coming into the price action. This will set up the potential for a series of short covering rallies. Should prices garner enough buying to break the significant resistance from the 200-day ($3.117 and rising slowly) and or the 20-week moving average ($3.08 and declining) the late coming shorts may provide fodder for additional gains. Should the declines continue, (signaling that the summer demand cycle will not have an impact on ending inventories) the June low down to $2.70 should contain the near-term range.
• Inventories increased 3.9 MMBbl in last week’s EIA report, the largest injection since May 2015. The main contributor to the large injection was exports, which dropped by 471, a low not seen since September 2016. Propane stocks now sit at 58.5 MMBbl, roughly 23.6 MMBbl lower than this time last year. However, propane stocks are still slightly above the five-year average of 51.4 MMBbl for this time of year prior to 2015 (before the crude price crash).
• All NGLs saw price increases week over week. The strongest being the butanes at 9%. Propane+ saw increases due the 7% increase in crude oil prices. Ethane also made gains as natural gas saw a 3% increase week over week.
• The EIA came out with their monthly NGL volumes and export volumes for April 2017 on Friday. Most products stayed relatively flat with the exception of the following:
o Propane saw a significant decrease in exports of 12%.
o Natural gasoline exports jumped 19% from 166 Mb/d to 197 Mb/d