- US crude oil inventories decreased by 2.7 MMBbl, according to the weekly EIA report. Inventories of gasoline increased 2.5 MMBbl, while distillates were down 1.5 MMBbl/d. The total petroleum inventories posted a decline of 1.7 MMBbl. US production was estimated to be down 81 MBbl/d because of Hurricane Nate in the Gulf of Mexico. Imports were up by 403 MBbl/d to an average of 7.6 MMBbl/d versus the previous week.
- Last week the market was supported by OPEC increasing their demand expectations and the Secretary General stating that the group may need to take extraordinary measures to balance the market next year. This news was also buoyed by China announcing that crude imports rose ~1 MMBbl/d in September. Geopolitical uncertainty in Iran (nuclear agreement under review) and Iraq (tensions between central government & Kurdish region) further favored the bulls. The market had a bullish run on the news, but there were also bearish elements that put a lid on the rally. The OPEC report also showed that oil production had risen 90 MBbl/d in September, much of which can be attributed to Libya and Nigeria continuing to increase production. The IEA’s latest report also showed global stock builds and rising non-OPEC production.
- As stated earlier, price action was bullish last week, posting a solid gain, but the price range from the week before remained intact. The price range of the week prior was $49.10-$51.71/Bbl, while last week’s range was $49.13-$51.72/Bbl. The prior week settled on the lows and last week settled near the highs. According to the latest CFTC release, the managed money long participants increased positions slightly, while the speculative short positions increased positions by 11,973 contracts. The consolidation trade of the last two weeks defines the lack of directional bias to the trade. The inability of the market to define whether current quota compliance and expected demand increases are enough to steadily draw down inventories is holding the tight $49-$52/Bbl range. The upcoming OPEC meeting on November 30th may shed some light on possibly extending the quotas. However, it is still evident that increased US activity and the potential for Libya and Nigeria to continue increasing production continue to limit upside. If the speculative length liquidates prices could test support levels at $45-$46/Bbl, while any bullish news will likely struggle to take prices above the well-defined resistance at $52-$53/Bbl.
- Natural gas dry production continued to decline last week, falling 1.4 Bcf/d on average. Most of the decline is attributed to Hurricane Nate, and production in the Northeast is still well off the record highs established in late September. Canadian imports were up slightly increasing 40 MMcf/d.
- Power demand was much 2.03 Bcf/d higher for the week as a result of higher temperatures in the South and Gulf. Res/Com was up 1.37 Bcf/d as the colder weather typical for October begins to set in. LNG exports were up, rising 620 MMcf/d on average (new weekly record) and Mexico exports rose slightly, increasing 120 MMcf/d. Total supply fell 1.38 Bcf/d, while total demand increased substantially, adding 4.22 Bcf/d, which may have contributed to the price run witnessed last week.
- Storage report last week came in only slightly above market expectations with an injection of 87 Bcf while the injection traded 86 on ICE prior to the release. With the data release within expectations, price action rallied significantly after the report. Look for this week’s injections to be below the 5-year average and below the injections of 2016.
- Prices opened the week extend the downward slide from the previous week. According to the CFTC report (October 10th), the Managed Money participants short positions increased by 20,187 contracts (now representing 16.9% of total open interest). The Managed Money long trade positions decreased slightly, shedding 1,050 contracts. As previously discussed this level of short open interest is fuse for future volatility.
- Much of the gains in price last week were made after some of the longer-range forecasts had cooler changes to the weather forecasts towards the end of the month into November. With these changes entering the market, there is the potential for some short covering rallies and volatility due to the large amounts of speculative shorts in the market as discussed last week. Expect a continuation of the recent range trade between $2.88 – $3.15, until the market confirms on the upcoming November pattern.
- On October 9th, Sunoco began shipping ethane by truck from Marcus Hook to domestic markets, marking the first time a facility in the US transports refrigerated, liquid ethane via truck. According to Ashley Madray (Gas Innovation’s executive vice president), in large volumes ethane is used in plastics production, while in smaller quantities ethane is used for research and development in:
- Manufacturing ethane-fueled power generation equipment and facilities
- Refrigeration for manufacturers and storage terminals
- Enhanced oil recovery at well sites
- Manufacturing of electronics
- The smaller volumes provided by trucks will allow companies like Gas Innovations , a specialty gas producer, in their R&D efforts without having to search abroad as they have previously.
- Inventories increased 0.9 MMBbl in last week’s EIA report. Propane stocks now sit at 78.9 MMBbl, roughly 25.0 MMBbl lower than this time last year. However, propane stocks are still above the five-year average of 69.0 MMBbl for this time of year prior to 2015 (before the crude price crash).
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