- US crude oil inventories increased 5.9 MMBbl, according to the weekly EIA report. With the continuing storm related refinery issues, inventories of both gasoline and distillates were down 8.4 MMBbl and 3.2 MMBbl respectively. The total petroleum inventories posted an increase of 1.7 MMBbl. US production started to recover from Harvey and increased 572 MBbl/d. Imports were down 603 MBbl/d to an average of 6.5 MMBbl/d versus the previous week.
- he market interpreted the inventory release as bullish and this bullish sentiment was maintained throughout the week thanks to several supportive news releases. Saudi Arabia said its Energy Minister and his Venezuelan counterpart discussed the possibly extending OPEC’s oil output cut beyond the current March 2018 expiration. In addition, OPEC, in its monthly report, said that oil output declined 79 MBbl/d in August. Saudi Arabia was the main reason behind the lower production level. Iraq and UAE also declined, but they are still producing in excess of their quotas. The market was tracking the Saudi Arabian numbers closely following last month’s number from OPEC that indicated they were out of compliance with the quotas. The IEA showed that global supply declined 720 MBbl/d (though most of those declines came from pipeline blockades in Libya and US production declines due to Harvey). The report also showed OPEC supply falling by 210 MBbl/d in August. Additionally, the IEA raised their demand growth estimate to 1.6 MMBbl/d, up from 1.5 MMBbl/d.
- Given the news items and the bullish interpretation of the inventory data, it was no surprise that price action started strong and continued that way through the week. Price action slightly eclipsed the highs from late July ($50.43/Bbl), climbing to $50.50/Bbl before stimulating some selling. Regardless, the strength led to the highest weekly close since the middle of May at $49.89/Bbl. According to the latest CFTC release, there was not a substantial position shift by the managed money sector as the speculative short positions declined 2,441 contracts. This buying back of short positions was also met with a liquidation of 18,038 long contracts.
- Continue to expect volatility in the trade during the coming weeks as the market digests the short term vs. longer term issues for WTI. There may be a near term bullish bias to the trade as the OPEC Ministerial Monitoring Committee is set to take place in Vienna on September 22nd. Rumors have already started suggesting Saudi Arabia may push to extend the cuts through 2Q2018. In addition, the committee has also expressed their intention to reassess Nigeria and Libya’s production plans. Both countries were exempt from quotas originally, but have since raised their output. Historically, prices remain supportive going into these meetings as participants “leak” pertinent information relative to prices. The May and April highs ($52/Bbl & $53.76/Bbl respectively) set the high end of the current price range. Drillinginfo continues to expect the primary range around $45-$46/Bbl to hold the trade as the market looks for signs of declining global crude oil and petroleum product inventories.
- Natural gas dry production increased by 250 MMcf/d on average during the week ended 9/15 to 73.9 Bcf/d. Last week a peak day was recorded at 74.5 Bcf/d, based on PointLogic estimates, supported by gains in the Southeast and Gulf regions. The gains in production were offset by Canadian imports, which showed a decline of 180 MMcf/d. During the upcoming shoulder season, gains in Northeast production will continue to push back Canadian imports until heating demand starts to materialize in November.
- On the demand side, power demand was significantly lower at the beginning of the week due to hurricane Irma. It started to rebound later in the week, but ended down 2.05 Bcf/d on average for the week. With hotter temperatures coming this week and the repairs from infrastructure damage continuing, expect this sector to rebound significantly in the coming week. LNG exports rebounded strong with an increase of 1.85 Bcf/d on average and are now near the highest levels of the year (setting a daily record). Mexico exports declined 410 MMcf/d. Total supply was up 70 MMcf/d week-on-week, while total demand declined 340 MMcf/d.
- The storage report last week came in near market expectations with an injection of 91 Bcf. Price action rallied on the release then slowly backed off. Look for this week’s injections to be very similar to last week’s and well above last year’s injections and above the 5-year average.
- The price action last week had a positive bias at the beginning of the week and held through the week. Unlike the previous two week’s action, last week’s gain in prices was met with the highest weekly total volume since early Jan and showed an increase in total open interest (Thursday to Thursday). These types of market internals are an indication of a shift in the trade perspective. According to the CFTC report (September 12th), there was a slight shift in positions of the Managed Money traders with the Managed Money participants short position decreasing by 3,523 contracts while the long positions increased by just 3,181 contracts.
- Prices continued to show strength despite some of the fundamental effects from the hurricanes and production growth. The market is entering a seasonal period of strength and with the market internals starting to support a positive bias (discussed above). The key near term and well defined resistance between $3.10-$3.13 should be challenged in the coming weeks. For those looking for lower prices remember that over the entire history of October contracts (that would be 27 years) there has never been one October contract that traded through the August high and then faded to trade through the August low, the August high was broken last week.
- Inventories increased 2.3 MMBbl in last week’s EIA report. Propane stocks now sit at 82.3 MMBbl, roughly 18.9 MMBbl lower than this time last year. However, propane stocks are still above the five-year average of 66.3 MMBbl for this time of year prior to 2015 (before the crude price crash).