• US crude oil inventories decreased by 6.5 MMBbl according to the weekly EIA report. Inventories of gasoline increased by 3.4 MMBbl, while distillates declined by 1.7 MMBbl. The total petroleum inventories posted a decline of 4.6 MMBbl. US production declined 7 MBbl/d, although this was largely due to declines from Alaska. Imports declined 491 MBbl/d to an average of 7.8 MMBbl/d versus the previous week.
• The declines in oil and total petroleum inventories had a brief positive impact on WTI prices. However, by the end of the week, prices closed at an eleven-day low. Recent bullish pressure over the previous few weeks was due to news that Saudi Arabia was continuing to push for quota compliance and inventory normalization ahead of the OPEC Ministerial Meeting. Specific news included a Reuters report that stated that the kingdom would cut their September allocations by 520 MBbl/d. However, following the meeting, several factors have weighed on prices including: the lack of detail surrounding how OPEC plans to boost compliance, increasing Nigerian & Libyan production undermining OPEC 11’s efforts for inventory normalization, and the continuing increases in US production. As stated here for the last few weeks, without continued high compliance with the cuts and the projected demand increases by the IEA, the potential for sustainable higher prices is limited.
• The narrow range in the price action was confirmed in the latest report from the CFTC, which had no significant change in positions by either the managed money long or short participants. Interestingly, the commercial shorts (producer hedging) reduced their positions by 40,586 contracts. Drillinginfo still expects producers to add to their short positions should prices maintain near the $50/Bbl level (one year strip). Traded volumes rose significantly last week and there was a decline in open interest. Prices traded in a tight range. This type of action confirms a lack of commitment amongst the traders (higher volume churning in a tight range while no significant changes in positions). The indicates that the market is waiting for some data to gauge the effectiveness of the cuts and higher demand season on working down global inventories.
• Trade in the coming weeks will likely confirm the top of the new range around $51/Bbl and has redefined the low side of the range to $44/Bbl. A continued lack of data regarding the pace and trajectory of inventory normalization will likely send prices lower in the coming week, perhaps sending WTI prices back into the primary range around $45/Bbl as Drillinginfo has been expecting.
• Natural gas dry production increased this week by 21 MMcf/d on average, establishing the first weekly average level over 73 Bcf/d of 2017. Drillinginfo expects production to continue growing throughout the rest of the year and reach levels near 75 Bcf/d by the end of the year.
• On the demand side, temperatures dropped below normal which brought power demand down 1.59 Bcf/d. LNG exports also declined slightly by 0.04 Bcf/d. Res/Com and Mexico exports compensated for most of these declines increasing by 1.07 Bcf/d and 0.31 Bcf/d, respectively. With declines from Canada supplies, total supply declined 210 MMcf/d while total demand declined 260 MMcf/d leaving the market shorter by 50 MMcf/d last week.
• The storage report last week came in well below market expectations with an injection of just 28 Bcf. This enabled a rally and took prices up for the week. Storage injections over the next two weeks are expected to be higher than last year but below the 5-year average.
• The price action last week broke above the previous week’s range and closed the gap that had held the market for a week. Accompanying this rally was a significant gain in the previous week’s volume and a slight decline in open interest. According to the CFTC report (August 8th), the Managed Money participants short position increased 12,330 contracts prior to the storage release on Thursday. Clearly, a significant of those shorts were expecting the gap at $2.923 to hold prices, but the EIA release forced them to cover. There are a significant number of shorts still in the market (selling at resistance around $2.998) and if prices garner enough support in the coming weeks, will become potential for sudden rallies if forced to cover.
• As discussed previously, the early month declines, possibly establishing the annual Q3 lows, but not being able to extend prices significantly lower last week brings in the possibility of testing the ultimate resistance provided by the 200-day moving average at $3.098. Last week’s reversal brings the market to a slightly negative bias and will require a continuation of the gains to confirm a reversal in the market’s longer-term expectations.
• Inventories increased 25 MBbl in last week’s EIA report. Propane stocks now sit at 67.6 MMBbl, roughly 24.3 MMBbl lower than this time last year. However, propane stocks are still slightly above the five-year average of 61.1 MMBbl for this time of year prior to 2015 (before the crude price crash).
• Ethane and Isobutane prices posted the largest gains week over week at 5%. Ethane prices increased because natural gas prices increased 8%. Despite weakened crude prices, c3+ prices increased except for natural gasoline, which dropped 2%. Although propane saw an overall increase in stocks, PADD 3 stocks dropped by 866.6 Mbd, which caused a 4% price gain at Mt. Belvieu.