Gas Draw Below Expectation, Prices Remain Weak

Gas Draw Below Expectation, Prices Remain Weak

Natural gas storage inventories decreased 78 Bcf for the week ending February 8, according to the EIA’s weekly report. This draw is below the market expectation, which was a decrease of 83 Bcf.

Working gas storage inventories now sit at 1.882 Tcf, which is 30 Bcf below last year and 333 Bcf below the five-year average.

At the time of this writing, the March 2019 contract was trading at $2.603/MMBtu, $0.028 above yesterday’s close of $2.575/MMBtu. However, these gains came before the release of the report.

With above-average temperatures last week, prices weakened and tested the multiyear low range between $2.522/MMBtu and $2.568/MMBtu. This range has been able to hold all declines since the June ’16 breakout, and was successful once again. Weather forecasts turned colder for the remainder of February early in the week, causing a brief price rally, with the March 2019 contract reaching $2.688/MMBtu. However, these gains could not hold as weather models turned slightly warmer overnight, and prices fell below $2.60/MMBtu. As the peak of winter nears an end, forecasts of colder weather may bring brief rallies like the one seen early this week, but these rallies will be limited, with the market being more comfortable with storage inventories and the end-of-season projections.

See the chart below for projections of the end-of-season storage inventories as of April 1, the end of the withdrawal season.

This Week in Fundamentals
The summary below is based on Bloomberg’s flow data and DI analysis for the week ending February 14, 2019.


  • Dry gas production increased 0.41 Bcf/d on the week, mainly driven by the East region (0.44 Bcf/d). Pennsylvania (0.26 Bcf/d) and West Virginia (0.16 Bcf/d) were the drivers of the increase in the region.
  • Canadian net imports were up slightly on the week, gaining 0.06 Bcf/d.


  • Domestic natural gas demand increased 12.26 Bcf/d week over week. Res/Com demand led the increase, gaining 7.55 Bcf/d. Power and Industrial demand also increased 3.25 Bcf/d and 1.09 Bcf/d, respectively.
  • LNG exports climbed 1.57 Bcf/d. Weather issues in the GoM subsided, and ships were able to reach port. Mexican exports decreased 0.03 Bcf/d on the week.

Total supply is up 0.47 Bcf/d, while total demand gained 13.80 Bcf/d week over week. With the gain in demand outpacing the gain in supply, expect the EIA to report a stronger draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 176 Bcf for next week. Last year, the same week saw a draw of 124 Bcf, while the five-year average is 160 Bcf.

Prices Are Up Despite The Inventory Build Due To Steep OPEC Cuts

Prices Are Up Despite The Inventory Build Due To Steep OPEC Cuts

US crude oil stocks posted an increase of 3.6 MMBbl from last week. Gasoline and distillate inventories increased 0.4 MMBbl and 1.2 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 0.9 MMBbl while reporting a gasoline build of 0.7 MMBbl and a distillate draw of 2.5 MMBbl. Analysts were expecting a crude oil build of 2.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 6.5 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production remained unchanged last week, per the EIA. Crude oil imports were down 0.9 MMBbl/d last week, to an average of 6.2 MMBbl/d. Refinery inputs averaged 15.8 MMBbl/d (865 MBbl/d less than last week), leading to a utilization rate of 85.9%. Although the report is bearish due to crude oil and total petroleum stocks build, steep OPEC-led supply cuts and US sanctions on Venezuelan crude are supporting prices. However, the global economic growth concerns and lower demand expectations due to uncertainty about the US-China trade dispute will keep the pressure on prices. Prompt-month WTI was trading up $1.22/Bbl, at $54.32/Bbl, at the time of writing.

Prices traded in the $52/Bbl to $54/Bbl range last week. WTI prices fell to their two-week lows on Monday due to increasing concerns over global economic and demand growth with fears about the US-China trade dispute, increasing US production, and a stronger dollar. Tuesday brought some recovery to prices due to bullish news from OPEC’s monthly report and Saudi Arabia’s comments on supply cuts as well as US and Chinese officials starting a new round of talks to possibly resolve the ongoing trade war ahead of the March 1 deadline.

The trade continues to be pulled in both directions with news of trade disputes and OPEC-supply cuts. Monday’s losses were largely due to increasing concerns over the US-China trade talks, as US President Donald Trump said that he did not plan to meet with Chinese President Xi Jinping before the March 1 deadline. Increasing US production and an uptick in rig count as well as the stronger dollar also played a role in pressuring prices. The pressure on prices eased on Tuesday following Saudi Energy Minister Khalid al-Falih’s comments and OPEC’s latest monthly report showing that the group cut oil production nearly 0.8 MMBbl/d in January. Khalid al-Falih said that Saudi Arabia would lower production to about 9.8 MMBbl/d in March, which is 0.5 MMBbl/d lower than its pledged level.

Although bullish sentiment is increasing with the steep OPEC-led supply cuts, Khalid al-Falih’s comments on further cuts beyond pledged levels, the US sanctions on Venezuelan crude, the uncertainty about trade disputes, and the possibility of weakening global economic and demand growth are limiting the gains. Prices can also see further pressure, as Libya’s largest oilfield, El Sharara, could soon resume operations and bring 0.3 MMBbl/d of production back online, as Libyan military forces secured and took control of the field.

Prices in the near term will be volatile as the market assesses the OPEC supply cuts and waits for a resolution from the new round of trade talks between the US and China. If a deal can be reached between the countries to eliminate the currently proposed tariffs on Chinese goods or to prevent any additional tariffs, global economic and demand growth could tick upward, which could support higher prices. However, if a deal cannot be reached and the Chinese economy and those of other emerging economies continues to suffer, sentiment could shift to bearish again regardless of the OPEC and non-OPEC supply cuts pressuring prices further.

Prices in WTI settled the week down ($2.54/Bbl) after trading a little higher than the previous week ($55.75/Bbl) but staying above the previous week’s low. The market internals showed volume gaining on the previous week, but open interest continues to decline as participants are seeking direction. Should prices find support from the ongoing tariff discussions, they may rally to the mid-November high of $57.96/Bbl. Should the tariff issues between the world’s two largest economies are not resolved, fears of global demand declines and a supply long market will re-establish taking prices initially down to $50.00/Bbl (where the market consolidated in early January) and perhaps further.

Petroleum Stocks Chart

The Week Ahead For Crude Oil, Gas and NGLs Markets – Feb 11, 2019

The Week Ahead For Crude Oil, Gas and NGLs Markets – Feb 11, 2019


  • US crude oil inventories showed an increase of 1.3 MMBbl last week, according to the weekly EIA report. Gasoline inventories increased 0.5 MMBbl, and distillate inventories decreased 2.3 MMBbl. Total petroleum inventories declined 4.3 MMBbl. US crude oil production was unchanged last week (per EIA). Crude oil imports were up 63 MBbl/d to an average of 7.1 MMBbl/d versus the week prior.
  • Trade last week opened near its high but could not follow through on the previous week’s gains. Bullish news continued this past week with the OPEC-led supply cuts. Saudi Arabia has committed to reducing supply levels in February to bring balance to the market. Venezuelan sanctions also provided a positive influence in the market.
  • The bearish news from last week was led by the ongoing tariff dispute between China and the US. The market discovered that no meeting will occur between President Trump and Chinese President Xi Jinping by the March 2 deadline, causing concern about a deal being reached.
  • The market is starting to get a better picture of trade positions as the CFTC report is now complete through January 8. The charts below provide insight into the trade in early January as the market was starting to rebound from the December lows. The long positions were destroyed during the declines, sending positions down to levels not seen since 2016.

  • On the other hand, interest by the Managed Money short sector rallied to positions not seen since October 2017, before the great 2018 bull run commenced.

  • WTI settled the week down $2.54/Bbl. The market internals had volume gaining on the previous week, but open interest continues to decline as participants are seeking direction. Should prices find support from the ongoing tariff discussions, they may rally to the mid-November high of $57.96/Bbl. Should the tariff issues not get resolved, fears about global demand declines and a supply long market will re-emerge, taking prices down to $50.00/Bbl initially, and perhaps further.


  • Natural gas dry production decreased 0.37 Bcf/d. Canadian imports declined dramatically, falling 2.52 Bcf/d on cold temperatures in Canada, as well as temperatures rebounding in the US, causing declining demand in the Northeast and Midwest.
  • Res/Com demand dropped 19.23 Bcf/d, while Power and Industrial demand fell 3.94 Bcf/d and 2.08 Bcf/d, respectively. LNG exports fell 0.88 Bcf/d on the week as weather in the Gulf of Mexico resulted in cargoes not being able to reach port. Mexican exports declined 0.16 Bcf/d. Totals for the week show supply declining 2.89 Bcf/d and demand falling 24.97 Bcf/d.
  • The storage report last week came in with a withdrawal of 237 Bcf, slightly below market expectations, which were ~247 Bcf.
  • For a fourth consecutive week, prices opened Sunday with a lower gap. Prices remained weak, testing the multiyear lows and an area that retains five quarterly lows since the summer of 2016. This area, between $2.522/MMBtu and $2.568/MMBtu, has held all declines since the June 2016 breakout. The declines last week left the market oversold, and the weekly momentum indicator has declined to levels not seen since the multiyear lows of February 2016.
  • The declines last week were primarily from the remaining winter bulls leaving their positions. While the CFTC report was released Tuesday and Friday of last week, the Friday release is dated for positions through January 8. The chart below shows that the speculative long trade started to reduce positions at the highs from November and December and has accelerated those liquidations on rallies in price.

  • However, as long positions fell, short positions weren’t increasing. This is largely due to the struggle that was occurring in the market through mid-January, as prices were jumping up and down based on weather forecasts. This type of environment is not typical for bears to establish new positions.
  • Last week the market internals changed dramatically. Open interest declined by more than 76,000 contracts, with more than 65,000 of those in the March contract. Volume exploded well above the recent average daily levels.
  • The weak close last week suggests that the declines have further to extend, but the oversold condition and the potential buying surrounding the three-year support zone may limit the declines. Changing forecasts predicting colder weather may bring brief rallies; however, these rallies will be limited with the market being more comfortable with storage inventories.


  • Prices were down across the board last week: ethane, propane, normal butane, and isobutane each fell 5%, while natural gasoline fell 1%.
  • US propane stocks decreased about 2.7 MMBbl the week ending February 1. Stocks now sit at 57.5 MMBbl, about 8.6 MMBbl and 1.8 MMBbl higher than in the first week of February 2018 and February 2017, respectively.

OIL – Current E&P themes in India

OIL – Current E&P themes in India

The second-largest NOC in India, Oil India Ltd (OIL) has revealed some of its current E&P themes in India. Domestically, it has a large footprint, and is present in 44 blocks (22,647 sq km) and is bidding strongly in the latest OALP and DSF offerings. In 2018, it was awarded 9 blocks as operator under the first round of OALP, including seven blocks in the Assam-Arakan region, and two in Rajasthan. In the ongoing Discovered Small Fields second round (DSF-II) it has bid on three more assets in the region (Umatara, Disai, and Tipuk) as well as five in other basins in India.

Fig 1 – India blocks by company

Fig 1 – India blocks by company

OIL’s core production (and technical headquarters) is in the Assam-Arakan Region in North-East India. Fields are for the most part mature, but OIL has succeeded in maintaining its Reserves Replacement Ration at > 100%. Domestic 2P reserves are most recently cited at 78.67 MMt oil and 127.59 Bcm gas. Advanced secondary and tertiary recovery methods are being used to maximise production.

In the Assam-Arakam region, OIL notes that it will be re-mobilizing drilling in the Ningru PML (petroleum mining lease), which is one of those awarded in OALP-1. The PML contains the Kumchai oil field, with an estimated OOIP of 94 MMb and GIIP of 4055 MMscm. Production is to be pushed from a current 130 bo/d and 0.035 MMscm/d to 800 bo/d and 0.2 MMscm/d.

In the Baghjan field in the pre-NELP Baghjan Block, special authorization has been obtained from MoPNG and the Ministry of Forests to drill a number of extended reach wells under the Dibru-Saikhowa national park, on the banks of the Dangori River (a tributary of the Brahmaputra River). The surface location will be well-pads already established within the block, to the south of the park. The plan is to drill seven ERD wells to extract oil from around 4000m. Targeted resources are 10 MMt in-place, and 3 MMt recoverable. Well costs are estimated at Rs 40 crore each including completion. OIL expects to complete this programme by the end of FY 2021-2022 and to raise production by a meaty 4,000 bo/d.

Fig 2 - Assam-Arakam region

Fig 2 – Assam-Arakam region

The Baghjan structure was identified in 1991 based on limited seismic data and later re-defined based on additional 2D seismic of 1999-2000. The presence of commercial hydrocarbon in the area was first established in the first well (Baghjan-1) in 2003. Two sands within the Lakadong+Therria formation (Early Eocene) produced gas with a minor amount of light oil/condensate.

The latest exploration discovery in the block was South Baghjan-2 well which encountered 15 m of pay in multiple sands in the Narpuh and Lakadong-Therria formations at a depth of 4,154 m. The well, completed in May 2017, produced 100 cu m/day of oil.

The Baghjan PML was awarded in 2003 and currently runs until 2023.

OIL’s strategy for reaching its own production targets and meeting the government’s aspirations (as expressed in “Hydrocarbon Vision 2030 for Northeast India”) is through intensive exploitation of its current producing areas, and enhanced exploration activities (presumably, in the the 2017 OALP-1 awards). It is also lobbying government to be re-allocated relinquished nomination (pre-NELP) blocks upon expiry.

Potential discovery in ExxonMobil’s second Cyprus NFW

Potential discovery in ExxonMobil’s second Cyprus NFW

While operations at ExxonMobil’s Glaucus 1 new-field wildcat are ongoing, local press reports suggest the well has discovered oil and gas. No resource volumes are available yet, but an announcement is expected once drilling operations are concluded. According to the reports the discovered oil reservoir is sufficiently large and commercially viable.


If the discovery is confirmed, it could generate further tension between Cyprus and Turkey. Although the well does not fall into territory claimed by Turkey, or the Turkish Republic of Northern Cyprus (TRNC), Turkey objects to the Republic of Cyprus drilling in waters that Cyprus has asserted a claim to under international maritime law. Turkey is the only member state of the UN that does not recognise Cyprus, and is also not a signatory to the UN Convention on the Law of the Sea (UNCLOS) which Cyprus has signed and ratified. In addition, Turkey considers that an agreement between Cyprus and Egypt delimiting their respective economic waters is null and void.


Glaucus 1 was spudded by the Stena Drilling “Stena ICEMAX” drillship on 9 January 2019. It is the second NFW in a two-well, back-to-back drilling campaign being carried out by the drillship, following Delphine 1. Glaucus 1 is located on offshore Block 10, SW of Cyprus in a water depth of about 2,100m,around 15km SW of Eni’s Calypso 1 gas discovery.


ExxonMobil, together with Qatar Petroleum, signed an Exploration & Production Sharing Contract (EPSC) with the Cypriot Government for Block 10 in February 2017, following a successful bid in the country’s 3rd Licensing Round. The EPSC has an initial three-year exploration period, extendable for a maximum of two renewal periods of two years each.


Interest in the area has been renewed following Eni’s super-giant play-opening Zohr 1X gas discovery offshore Egypt, located around 50 km SE of the Block 10 boundary. Zohr was announced as a significant discovery on 1 September 2015, having encountered over 400m of net pay in sub-salt Miocene/Cretaceous carbonates in the Nile Delta Basin. An appraisal programme has confirmed the 30+ Tcf GIIP figure. The carbonate reef structure, which has an aerial extent of ~100 sq km, is perceived to be a satellite structure to the Eratosthenes Continental Block (ECB), with several analogues/lookalikes wrapping around the high and enhancing the prospectivity of Blocks 6, 7, 8, 10, 11 and 12 within the Cypriot EEZ. Eni subsequently also announced the Calypso 1 NFW on Block 6 as a promising dry gas discovery, which could hold in the range of 6-8 Tcfg (assumed to be GIIP).


ExxonMobil operates the acreage with a 60% interest, with Qatar Petroleum holding the remaining 40%.

Figure 1. Republic of Cyprus demarcated offshore blocks and exploration wells. Also shown are the RoC’s proclaimed and partly agreed EEZ (light blue line), the TRNC’s proclaimed EEZ and outline of demarcated blocks (red line), the outer limits of the continental shelf as claimed by Turkey (orange line) as well as Turkey’s offshore exploration wells. (This map is not an authority on international boundaries)

Figure 1. Republic of Cyprus demarcated offshore blocks and exploration wells. Also shown are the RoC’s proclaimed and partly agreed EEZ (light blue line), the TRNC’s proclaimed EEZ and outline of demarcated blocks (red line), the outer limits of the continental shelf as claimed by Turkey (orange line) as well as Turkey’s offshore exploration wells. (This map is not an authority on international boundaries)