- US crude oil inventories increased by 2.6 MMBbl, according to the weekly EIA report. Gasoline and distillate inventories both decreased, by 1.7 MMBbl and 2.0 MMBbl, respectively. Total petroleum inventories declined 6.9 MMBbl. US production was estimated to be up 26 MBbl/d, with the lower 48 showing a gain of 20 MBbl/d. Imports decreased 508 MBbl/d to an average of 7.1 MMBbl/d versus the week prior.
- Several bullish factors emerged during the week. The IEA highlighted the declines in Venezuelan production, which is down more than 0.5 MMBbl/d from last year’s high. The market continued to digest the departure of Rex Tillerson and the potential for the Trump administration to pull out of the Iran nuclear deal. The re-imposition of the sanctions on Iran would quickly take crude volumes off the market. The bullish bias is good for Saudi Arabia, which is aiming for a sustained period of $70/Bbl prices before the Saudi Aramco IPO. Any bullish news and geopolitical tensions will be echoed in the market by the Saudis.
- The most important element of the price action last week was the distinctive bullish bias of the inventory data. The rally continued through the end of the week. An element that contributed to the buying was the decline in the dollar (due to concerns about potential trade wars). Two weeks ago, gains in the equity markets extended over to the WTI market, but clearly that correlation disappeared from the WTI market last week as traders focused on direct influences on crude prices. Focusing on the direct influences will likely limit significant gains as the US continues to grow production. The EIA has stated that shale production in the US will surpass 11 MMBbl/d by the end of 2018.
- WTI broke out of its recent range trade that has had traders uncommitted to new positions. That changed over the past ten days as the latest CFTC report showed the managed-money long positions increasing 24,685 contracts during the week, while the commercial sector (both long and short) remained largely unchanged. It is likely that the speculative trade increased positions, as prices broke above (and held through two tests of) $64/Bbl.
- The market internals improved last week as volume climbed above the 12-week average and total open interest started to increase as prices rallied and closed at the highest level since early February. At week’s end, the market is not overbought, and it has all the markings of extending higher. It seems a foregone conclusion that prices will test the highs from January at $66.66/Bbl. It is also important to watch US operators’ hedging, as they will be the only sector selling into the rallies (the speculative managed-money shorts are currently less than 1% of total open interest). Perhaps the speculative run is manifesting its gains because of belief in the Aramco price expectation. While price expectations for the coming week are positive with a test of previous highs, watch for sudden declines in the prompt contract and extended contracts simultaneously as US operators continue to hedge. Eventually, the WTI market will refocus on the fundamental realities and confirm Drillinginfo’s belief that prices will retreat back to the mid-$50/Bbl levels for a period.
- Natural gas dry production increased last week, rising 0.21 Bcf/d as volumes surpassed 79 Bcf/d on average, setting a new weekly average record. Canadian imports rose 0.1 Bcf/d.
- Spring started to influence the demand levels as Res/Com fell 1.56 Bcf/d and industrial demand decreased by 0.33 Bcf/d week-on-week. Power demand decreased by 0.05 Bcf/d on average. Mexican exports were down slightly, falling just 0.02 Bcf/d, while LNG exports increased 0.07 Bcf/d. This left the market’s total demand lower by 2.06 Bcf/d, while total supply was up 0.32 Bcf/d week-on-week.
- The storage report last week came in a little below expectations, with a withdrawal of 86 Bcf. The report release brought a decline in prices, which continued downward for the remainder of the week. The final number for storage may end up being just below 1.4 Tcf.
- Prices rose early in the week only to succumb to daily losses later in the week. According to the latest CFTC report (dated March 20), the managed-money short position increased by 13,841 contracts, while the managed-money long sector increased positions by 16,746 contracts, for nearly a net wash. There is currently indifference to the direction of futures prices. Market internals continue to be weak, with volume and open interest declining as the market probed lower. The prompt April contract expires this week, and the expiration trend over the past 15 of 16 months is to have some sort of a rally during the process.
- Earlier in the month, traders may have been beginning the annual seasonal shift that has prices rising during the second quarter, but recent activity suggests the price action is testing the long-term lows and support provided by December ’17, February ’17, November ’16 and August ’16, all between $2.568 and $2.522. However, with the upcoming expiration of the April ’18 contract, it is unlikely that a breakdown will occur this week. When the May contract becomes prompt, it may garner enough selling to test the zone. This will be a key area for price in the near term, as a breakdown will trend prices toward $2.20, or if the support area holds, prices will head toward their annual second-quarter strength.
- Energy Transfer Partner’s Mariner East 2, expected by the company to be completed in Q2 this year, got hit with another violation from the PA Department of Environmental Production for releasing drilling fluids into a stream. The project’s 40th notice will prevent ETP from resuming drilling at the site until the DEP gives approval. This among other recent delays raises concerns for the shippers on the project, as an in-service delay would force shippers to find a different home for their ethane, propane, and butanes. A delay would also affect the market, which is relying on the project for demand relief this summer.
- Mariner East 1 remains down after shutting in on March 7th for a study period, as gas quality in the region likely is causing more rejection, pushing the Btu limits on natural gas pipes in the region.
- Studies commissioned by Shale Crescent USA, a non-profit that is pushing for investment in ethylene and polyethylene plants across the region, state that an investment would yield better returns in Appalachia than the Gulf coast due to about 32% less feedstock costs.
- Inventories decreased 2.1 MMBbl in last week’s EIA report. Propane stocks now sit at 36.8 MMBbl, roughly 7.7 MMBbl lower than this time last year, and 9.2 MMBbl lower than the five-year average.
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