- US crude oil inventories increased 5.0 MMBbl, according to the weekly EIA report. Gasoline and distillate inventories decreased 6.3 MMBbl and 4.4 MMBbl, respectively. Total petroleum product inventories declined 4.5 MMBbl. US production was estimated to be up 12 MBbl/d, with the lower 48 showing a gain of 20 MBbl/d. Imports decreased by 418 MBbl/d to an average of 7.6 MMBbl/d versus the week prior.
- As mentioned last week, the market got a boost from the strong economic reports and closed with a rally. When reports came out regarding the dismissal of Secretary of State Rex Tillerson, the stock market dropped significantly and WTI followed in that direction. After the initial decline, the market realized that the departure of Tillerson may have a positive impact on oil prices due to his position on the Iran nuclear deal. Tillerson was supportive of the nuclear deal, and his departure may lead to sanctions being restored. Additionally, the situation on the ground in Venezuela and the supply disruption, due to strikes at the Libyan port of Zawiya (exporting roughly 308 MBbl/d), supported prices. The rumors about Aramco’s IPO being delayed until 2019 due to the inability to maintain higher prices also supported prices as the week progressed.
- The recent range action of WTI confirms the struggle traders face to maintain any type of major directional move. According to the latest CFTC report, the managed-money long positions liquidated 14,709 contracts during the week, but larger position moves came from the commercial short sector hedging, which increased by 25,239 contracts. The commercial long sector (refineries hedging input costs) increased by 31,421 contracts. At 18.9% of total open interest, the speculative long positions have reduced some exposure but continue to remain at length and susceptible to a liquidation event.
- The market internals continue to lack directional bias. Last week had some of the lightest daily trade volumes in recent history, and volume is the fuel for rallies or declines. Speculative length has been selling the rallies rather than adding to positions as they did earlier in the year. Expect outbreaks of positive runs, but recent history has shown that these runs will be met with selling (hedging) by US producers. Indications have the supply side overwhelming demand during the immediate period and should allow for a near-term test of support in the recent range ($58-$64/Bbl). Drillinginfo believes that the fundamentals mean prices will settle in a range around $55/Bbl when supply and demand become the focus of the market once again.
- Natural gas dry production increased last week, rising 170 MMcf/d. Most of the gains came from the Bakken as the region started covering from the freeze-offs of the previous week. Canadian imports rose 370 MMcf/d.
- On the demand side, the lower temperatures in many parts of the US are being met with decreases in heating demand. Res/Com demand fell 670 MMcf/d, and industrial decreased by 100 MMcf/d on average for the week, while power demand increased by 550 MMcf/d. Mexican exports were up slightly, rising just 110 MMcf/d. LNG exports decreased by 120 MMcf/d, which left the market’s total demand lower by 240 MMcf/d, while total supply was up 550 MMcf/d.
- The storage report last week came in slightly below expectations, with a withdrawal of 93 Bcf. The report release brought a decline in prices and broke below support at $2.70/MMBtu. This week’s release should be well above last year’s average and close to the five-year average.
- The price rise on Monday, largely based on weather forecasts, pressured additional short covering, according to the latest CFTC report (dated March 13). The report showed managed-money short positions decreasing by 15,145 contracts, while the managed-money long sector increased positions by 10,978 contracts. For the second week in a row, the traders’ market position is indicating that expectations may be shifting toward the annual late spring strength.
- While traders may be beginning the annual seasonal shift that has prices rising during the second quarter, the market will continue to evaluate the fundamentals, with record production providing a limitation on any dramatic rise in price. The internals continue to lack confidence in a longer-term rise in price, as volumes and open interest continue to rise more on price declines. Last week provided an additional bearish signal with the outside weekly reversal (trading a higher high than the previous week only to then trade below the previous week’s low, closing just above the low). These events leave the market with a negative bias going into this week, and prices are likely to see downward extensions.
- A test of the current prompt low (spot April) at $2.633 should be expected in the coming week. From there, additional declines may take April down to the February low of $2.565, which is approaching the long-term support provided by the December ’17, February ’17, November ’16 and August ’16 lows, all between $2.568 and $2.522. However, as a general rule, markets that have a period of low volume and low volatility (as this market has been providing) suggest a market constructing a base supporting a longer-term price run.
- Should prices garner support over the coming weeks, then the highs of the past two weeks ($2.793-$2.811) will provide the targets for selling. If that zone breaks, then the February high of the April contract, prices at $2.849, will come into play. With the market continuing to digest the end-of-season inventories (either side of 1.4 Tcf) and the lack of conviction about direction, it is likely that prices this week will stay within the range of $2.63-$2.81.
- CP Chemical announced the start up of their new 1.5 million mt/year ethane steam cracker near Baytown on Monday. This unit is one of the largest and most efficient in the world.
- Energy Transfer Partners’ Mariner East 1 pipeline remains offline after being shut down on March 7 due to sinkholes. In addition to the shutdown, ETP was issued a notice of violation by Pennsylvania’s environmental regulators when the Mariner East 2 pipeline leaked about 50 gallons of drilling fluids into a stream.
- Energy Transfer Partners and Satellite Petrochemical USA Corp. have entered into a joint venture, Orbit Gulf Coast NGL Exports LLC, in order to construct a new export facility on the US Gulf Coast, which would supply Satellite’s ethane cracking facilities in China. The facility is expected to provide about 150 MBbl/d and is expected to come online in 4Q 2020.
- Inventories decreased 3.9 MMBbl in last week’s EIA report. Propane stocks now sit at 38.8 MMBbl, roughly 6.4 MMBbl lower than this time last year and dipping below the five-year average prior to the price crash.
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