- US crude oil inventories decreased by 1.1 MMBbl, according to the weekly EIA report. Gasoline inventories and distillates inventories decreased by 3.0 MMBbl and 3.1 MMBbl, respectively. Total petroleum inventories posted a large withdrawal, declining 10.6 MMBbl. US production was estimated to be up 15 MBbl/d. Imports decreased by 720 MMBbl/d to an average of 7.9 MMBbl/d versus the week prior.
- Following the limited air strike in Syria, prices opened the week lower. President Trump’s tweet regarding the “artificially high” price levels and ample production availability briefly introduced additional downward pressure. However, the bullish inventory release reversed the declines and sent WTI prices to the highest level since November 2014, at $69.56/Bbl. The continuing success of the OPEC-led supply cuts was reinforced by OPEC officials through the week following Trump’s tweet. Additionally, Venezuelan production declines and the potential of the US reinstating Iranian sanctions continue to keep the bullish bias in the market alive. Though Syria has not been an exporter of crude since the start of the civil war in 2011, there remains the potential for additional sanctions against Russia (including oil companies) for their support of the Syrian regime. The geopolitical tensions in the Middle East are supportive of additional price gains.
- The CFTC report showed managed money long positions increasing by 10,195 contracts before the inventory data was released. The commercial sector long and short positions offset each other. Gains in the speculative long positions after the inventory report should be forthcoming in next week’s release.
- As speculative long positions continue to drive prices, it becomes less likely that the trade will panic and force a sizable liquidation. It is more likely that prices will test $70/Bbl, but with each test, profit taking from the speculative sector will lead to brief declines in prices. Market internals continue to support the bullish bias in prices. Volume last week was below the prior week’s levels but still above recent averages. Open interest was similar to the previous week’s.
- Should additional bullish events lead to more length, then the market may be faced with a potential “blow-off” topping pattern at or above $70/Bbl. However, the market has already found some selling and will likely find more profit taking on future tests at these levels. While this type of speculative bubble can create a watershed decline for a short period of time, the market’s continued strength of late limits the potential. Consistently higher US production will continue to weigh on prices. The longer prices stay at these levels, the more US operators are likely to commit additional CAPEX to D&C. In the next few months, this is the main factor that could cause price corrections. Drillinginfo’s expectation is that retracements from failed tests of $70/Bbl will set the market up for a potential range between $58 and $62 for the next several months.
- Natural gas dry production declined last week, falling 0.6 Bcf/d, led by losses from the Gulf of Mexico, Northeast and West regions. Production declines in the Gulf of Mexico (-0.23 Bcf/d) were attributed to Shell’s maintenance of the Mars and Ursa platforms. In the Northeast, although production declines occurred, last week still saw the second-highest weekly production level, behind only the previous week. West production declines were shared by multiple supply meters. Canadian imports decreased 0.34 Bcf/d.
- Demand levels rose slightly, with Res/Com gaining a modest 0.05 Bcf/d, while industrial demand fell by a modest 0.08 Bcf/d. Power demand increased by 0.56 Bcf/d on average for the week. Mexico exports were down slightly, by 0.05 Bcf/d, while LNG exports were up 0.22 Bcf/d. This left the market’s total demand 0.74 Bcf/d higher, while total supply was 0.94 Bcf/d lower.
- The storage report last week came in with a stronger withdrawal than expected, with a 36 Bcf reduction. With the supply and demand trends last week, this week’s storage report may be another withdrawal, which is historically late for withdrawals. Regardless of whether it is another withdrawal or a slight injection, the historical trend of injecting 200 Bcf during April will not occur in 2018, and this brings an underlying strength to trade.
- The recent trade continues to display a range-bound focus, carrying trade for more than two months. Last week’s action brought one of the largest daily declines on the day of the bullish storage release, with the highest daily volume since February 9 (624,728 contracts changed hands), only to retrace all those losses on Friday. This action confirms that the market does not have any clear conviction regarding direction in the near term, preferring to stay within the range. After the April contract settled at $2.691, the weekly closes this month have all been between $2.701 and $2.739. Adding to that bullish bias is last week’s close, the highest since the collapse after the late January run. Other bullish market information showed up in the latest CFTC report (dated April 17) as the managed money short positions decreased positions by 23,917 contracts while the managed money long sector also increased positions by 17,503 contracts, all prior to the high-volume response to the storage release.
- Staying within the range for the past three months ($2.53-$2.811), prices did trade to a higher weekly high ($2.79) but failed at the commonly watched 20-week moving average (declining). That failure at resistance set up the declines to test support after the storage release.
- Now the market will be forced to digest the total storage inventory data that shows the market short versus expectations coming out of the historical annual injection period in April. In addition to that revelation, the recent declines in production are contrary to expectations of continual growth. The recent (three-month) consolidation period will eventually break out or break down from that range. History suggests that the market will break out as prices show strength during the late spring and early summer. A daily close above the March highs at $2.811 may provide a period of short covering, taking prices through the two-month resistance. The potential breakdown in prices, contrary to history, will find significant support on declines (as confirmed last week) from $2.65 down to $2.565, with major support from the two-year lows at $2.522.
- As we enter the shoulder season, total NGL production in the Lower 48 is down 46 MB/d for the week ending April 20. This drop is led by PADD 3, making up 17 Mb/d of that drop.
- Mariner East I remain down and there is no timeline on when it will be back in service. Sunoco says testing is done and it is safe to proceed.
- Sunoco requested to amend the MEII drilling plan in Chester County. The proposal includes a change in the method of horizontal directional drilling. The DEP will require approval after a public hearing on April 30th, and comments from the public will be allowed until May 11th.
- Midwest states are in discussions to create a new NGL benchmark, hoping to rid of reference to Mont Belvieu prices as the regional market price would be more reflective of fundamentals in the area, especially as more demand comes into play like Shell’s ethane cracker.
- Inventories basically remain close to last week’s volumes, with only a small build of 40 MBbl in last week’s EIA report. Propane stocks now sit at 35.9 MMBbl, roughly 4.5 MMBbl lower than this time last year and 10.2 MMBbl lower than the 5-year average.