- US crude oil inventories increased 2.4 MMBbl, according to the weekly EIA report. Gasoline and distillate inventories decreased 0.8 MMBbl and 0.6 MMBbl respectively. Total petroleum inventories remained unchanged on the week. US production was estimated to be up 86 MBbl/d. Imports increased 721 MBbl/d to an average of 8.0 MMBbl/d versus the week prior.
- The market had to digest several supply and demand issues last week, starting with the proposed import tariffs of 25% on steel and 10% on aluminum. This announcement created speculation on possible retaliatory action, which would be detrimental to economic growth and would limit oil demand. The US oil industry is heavily dependent on steel for pipelines, of which 75% is currently sourced from outside the US. All of this brought a lack of clarity to the crude market, pressuring prices early in the week. The market also received some bullish news from the IEA, which expects an increase in demand of 6.9 MMBbl/d by 2023. Half of the expected demand growth will come from India and China. The IEA report also stated that US production could grow 3.7 MMBbl/d and OPEC production by 0.75 MMBbl/d in the same time frame (including a Venezuelan decline of 0.7 MMBbl/d).
- Prices traded lower during the week, as uncertainties regarding the impact of the tariffs introduced a negative bias to the market. Much of the selling came from the speculative sector as it liquidated 11,052 long positions. The same report showed more selling from commercial short sector (hedging) as its positions increased by 15,988 contracts. The price recovered somewhat on Friday, as traders focused on the encouraging US unemployment report. The market was also given some clarity around the proposed tariffs as the administration narrowed the scope of targeted countries. The market internals also reversed slightly last week, as volume increased during the declines.
- The speculative-based run in prices is coming to an end. Any positive price runs will be met with selling (hedging) by US producers. Expect a test of the support of the recent $58/Bbl-$64/Bbl range later this spring. Drillinginfo believes that fundamentals will eventually bring an end to the speculatively induced price gains, and WTI will settle in a range around $55/Bbl.
- Natural gas dry production declined last week, falling 340 MMcf/d as cold temperatures in the northern plains forced freeze-offs in the Bakken Basin. LNG imports also declined week-on-week, by 310 MMcf/d. These losses were compensated by gains in Canadian imports, which rose 680 MMcf/d with the colder weather.
- On the demand side, the temperatures brought an increase in Res/Com, which rose by 5.79 Bcf/d, and industrial, which increased by 0.58 Bcf/d. Power demand decreased by 0.35 Bcf/d on average for the week. Mexico exports were up slightly, rising just 10 MMcf/d. LNG exports decreased significantly this week, declining 0.56 Bcf/d, as the first cargo left the Cove Point facility and the subsequent inflow into the facility decreased. This left the market’s total demand higher by 6.37 Bcf/d, while total supply was up just 30 MMcf/d.
- The storage report last week was in line with the market’s expectations, posting a withdrawal of 57 Bcf. The report release brought little change to prices as the April contract gradually declined throughout the day. This week’s release should be well above last year’s average and slightly higher than the 5-year average.
- The slow rise in prices after the failure to retest the lows of last month forced some short covering. According to the latest CFTC report (dated March 6), the Managed Money short positions decreased positions by 19,620 contracts, while the Managed Money long sector increased positions by 6,768 contracts. The trader’s market position is indicating that expectations may be shifting toward the annual late spring strength.
- While traders may be starting the seasonal shift, the market will continue to evaluate the fundamentals, with record production providing a limit on any dramatic rise in prices. The internals continue to lack confidence in longer-term price increases because volumes have been below average since the April contract took over as prompt. Last week’s volumes were also higher on declining days toward the end of the week than on rising days earlier in the week. Volume is the fuel for gains or declines, and currently the market has none.
- Open interest declined last week with the short covering, then flattened. Climatology becomes more bearish for prices as March moves along. Last week’s weather (showing in this week’s storage report) coupled with the cold early this week may provide a short-term bounce for prices, but slightly below average or average forecasts late in March and April will facilitate injections and bring a pause for price runs.
- A test of the current prompt low (spot April) at $2.633 should be expected before month’s end. From there, additional declines may take the April contract down to the Feb low of the April contract at $2.565, which is approaching the long-term support provided by the Dec ’17, Feb ’17, Nov ’16 and Aug ’16 contracts all between $2.568 and $2.522.
- The potential market strength from the near-term weather forecast will need to break above last week’s high ($2.793), then break above the Feb high of April contract prices at $2.849. With the market continuing to digest the end-of-season inventories (either side of 1.4 Tcf) and the lack of conviction on direction, it is likely that prices this week will stay within the range of $2.63-$2.84 MMBtu in the short term.
- Wednesday, Pennsylvania’s Public Utility Commission ordered a temporary shutdown of the Mariner East 1 NGL pipeline, stating that the construction of Mariner East 2 and 2X (running parallel to ME 1) and the sinkholes caused by drilling for the pipelines “compromise the safety of the public.” The pipeline, which carries ethane, propane, and butane from the Marcellus to Marcus Hook, is expected to be shut down for 10-14 days
- Inventories decreased 1.6 MMBbl in last week’s EIA report. Propane stocks now sit at 41.1 MMBbl, roughly 4.1 MMBbl lower than this time last year. However, propane stocks are still slightly above the five-year average of 39.7 MMBbl for this time of year prior to 2015 (before the crude price crash).
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