- US crude oil inventories decreased by 6.0 MMBbl, according to the weekly EIA report. Inventories of gasoline increased 1.6 MMBbl, while distillates were down 2.6 MMBbl. Total petroleum inventories posted another large decrease of 6.1 MMBbl. US production increased 14 MBbl/d. Imports were down 213 MBbl/d to an average of 7.2 MMBbl/d versus the previous week.
- The sizable decline in crude and total petroleum inventories should have had a far greater impact on prices but managed only a small bump upon release. Trade instead focused on a Reuters survey that showed OPEC’s September production higher due to increases from Iraq and Libya. In addition, the Turkish President Recep Tayyip Erdogan chose to revoke his threat of shutting down the pipeline that flows nearly 0.6 MMBbl/d of crude from Northern Iraq to the Turkish port of Ceyhan adding additional bearish pressure.
- The weak price action left the week with the lowest close of the last four. Following the declines last week, the $52-$53/Bbl level has been firmly established as the high-end resistance. According to the latest CFTC release, the managed money long participants reduced positions by 2,854 contracts while the speculative short positions increased 8,080 contracts. The selling was also helped by producer hedging adding 16,028 contracts. The interesting aspect comes from the merchant long position (refineries hedging feedstock costs) adding 25,795 contracts. After the late week selloff, expect the speculative length to be lower in the coming week’s report.
- The increase in the merchant short position is to be expected each time prices trade to the formidable resistance area. The re-occurring theme that the market has witnessed this year is the US operators’ willingness to take advantage of any rally over $50/Bbl to hedge production. US production economics and increases in OPEC production has put a lid on price runs near term. The market is looking for signs in fundamental data regarding inventory normalization. Until inventories normalize to levels from prior to the price crash there can be no sustained price recovery. Drillinginfo expects the volatile trade between $46-$53/Bbl to continue in the near term.
- Natural gas dry production continued to decline last week, falling 530 MMcf/d on average. While some of the declines occurred at the end of the week with the associated well abandonment from Nate, a significant portion of the declines were in the Northeast. With Rover getting FERC approval for increasing capacity, some of the recent declines may be offset. Canadian imports were up slightly increasing 100 MMcf/d.
- On the demand side, power was lower with the moderate temperatures, falling 5.8 Bcf/d on average for the week. Res/Com was down 930 MMcf/d. LNG exports were flat rising only 100 MMcf/d on average and Mexico exports rose slightly, increasing 30 MMcf/d. Total supply fell 530 MMcf/d, while total demand fell by 7.18 Bcf/d, which contributed to the price declines during the week.
- The storage report last week came in below market expectations with the injection of 42 Bcf. Price action had an initial rally off of the storage data only to reverse and close the week lower testing support. Look for this week’s injections to be around the 5-year average and above the injection of 2016. The next two weeks, based on current forecasts, look to be below both the 5-year and very close to 2016.
- As expected and discussed last week, prices immediately shed the premium afforded to the Nov contract, tested and broke the expiration low, closing the week at lows not seen since early August. According to the CFTC report (October 3rd), there was significant selling in the Managed Money participants short position, which increased by 37,499 contracts (now representing 15.2% of total open interest). The Managed Money long trade positions increased positions slightly, adding 3,651. This level of short interest as a percentage of total open interest is higher than levels seen in Oct ’16 and the lows of Feb ’17. In recent history, only the lows of Nov ’16 and the lows of Aug ’17 had higher percentages than currently in the market. These are short positions that may be forced to cover should prices find support going into the winter returning volatile trade to the natural gas market.
- As the market enters late Oct and early Nov, price action will focus on the upcoming potential for winter temperatures bringing swings in expectations as the weather reports change. Generally, the seasonal trend directs prices higher into the Q4 with expectations of winter demand bringing support to prices, but the last two years have provided additional tests of support extending into Oct and Nov when the expectations were not met. Expect a continuation of the recent range trade between $2.88 – $3.15 with a potential of short probes lower, until the upcoming November and December forecasts come into a focus that can support trade. Should those forecasts alter expectations, significant volatility will occur.
- EPIC announced plans to build a 650-mile NGL pipeline alongside their planned crude oil pipeline. The pipeline is expected to carry 220 MBbl/d of y-grade from the Midland and Delaware basins to Corpus Christi. An open season for the system is scheduled before the end of the year in order to secure commitments.
- Inventories decreased 0.4 MMBbl in last week’s EIA report. Propane stocks now sit at 78.0 MMBbl, roughly 26.0 MMBbl lower than this time last year. However, propane stocks are still above the five-year average of 68.7 MMBbl for this time of year prior to 2015 (before the crude price crash).
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Latest posts by Maria Sanchez (see all)
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