- US crude oil inventories declined 2.7 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories showed sizable gains of 7.5 MMBbl and 3.0 MMBbl, respectively. Total petroleum inventories posted a gain of 5.0 MMBbl. US crude oil production was estimated to be up 200 MBbl/d. Crude oil imports were down 319 MBbl/d, to an average of 7.5 MMBbl/d, versus the week prior.
- While some bullish expectations remained in the market, last week started with price declines. For imports and exports during December, China reported its lowest level over the past two years, causing the declines. This news enhanced concerns about slowing economic growth and demand for petroleum products. These concerns were quickly reversed with news that China is planning to introduce policies to stabilize the slowing economy. On Friday, news of a Chinese proposal to reduce the trade imbalance between China and the US over the next six years resulted in WTI prices rising $1.78/Bbl and closing the week at the highest level since early December.
- Other supportive elements continue in the market as Saudi Arabia’s energy minister Khalid Al-Falih announced that OPEC is on track to comply with the production cuts. He added that OPEC will have no need for an extraordinary meeting before the April meeting, where it will decide on output policy for the remainder of 2019.
- The China announcements and perceived strength in the US economy had the US dollar gaining last week. The inverse relationship between the US dollar and WTI prices disappeared as both gained over the week.
- Last week’s inventory release continued the trend of late, with crude oil declines but gains in total petroleum inventories. This reflects historic demand declines in the first quarter and may have a reduced impact on prices.
- Prices in WTI settled the week up $2.21/Bbl, but the market internals were not as supportive to additional gains. WTI had a decrease in volume and continued declines in open interest as prices increased, testing resistance. A long-term bullish market needs to keep feeding the rallies with additional volume and open interest gains if the price run is to maintain its structural bias. The CFTC report is still not available, due to the government shutdown, so the market is blind to position structure among the sectors.
- WTI prices are now challenging the high end of the range and an area of consolidation from last November and December between $49.00/Bbl and $54.55/Bbl. As the market digests production cuts, sanctions, and tariffs, the price range will be between $42/Bbl and $55/Bbl near-term. Once the market has a full understanding of these elements, the price will likely stabilize around $55/Bbl.
- Natural gas dry production gained 0.25 Bcf/d, while Canadian imports decreased 0.17 Bcf/d.
- Res/Com demand increased 6.73 Bcf/d due to cooler temperatures. Power and Industrial demand also increased 1.86 Bcf/d and 0.49 Bcf/d, respectively. LNG exports declined 0.31 Bcf/d on the week, while Mexican exports were flat. Totals for the week show the market gaining 0.08 Bcf/d in supply while demand increased 9.14 Bcf/d.
- The storage report last week came in with a withdrawal of 81 Bcf, well below historical withdrawals for the same week. The upcoming weeks should show more historical seasonal withdrawals.
- The week started with a large price gap created from changes in the weather forecasts. Forecasted temperatures support stronger demand through the end of the month. As discussed previously, the market adjusts to changes in the forecasts, which occur throughout the day. An example of this intra-day volatility was seen on Friday, when the market opened lower and moved down, trying to close the gap from earlier in the week, only to reverse when the late-morning forecasts reaffirmed the cold weather.
- With the CFTC not reporting the positions of trade sectors (due to the government shutdown), it is impossible to identify shifts within traders’ expectations and positions. Market internals had volume and open interest gaining (compared with the previous week) as prices rallied.
- An early week run took prices up to the week’s high at $3.722/MMBtu. Prices then declined throughout the week, likely creating the low side of the trade range between $3.167/MMBtu and $3.201/MMBtu, barring any significant forecast changes. The high side of the range may be tested during the coming week, with a potential for a $0.55+/MMBtu trade range, as prices continue a period of potentially high volatility.
- Trade has not reached a consensus about the outcome of the winter, with many traders concerned about ending storage inventories in March. This concern is buoyed by the flattening of production gains over the past two months. Other traders are not worried about the ending inventories. This struggle to assess the market is the reason that price action is so sensitive to the forecasts.
- Prices improved week over week across the board. Ethane was up $0.01 to $0.30, propane up $0.02 to $0.67, normal butane up $0.02 to $0.80, isobutane up less than $0.01 to $0.80, and natural gasoline up $0.01 to $1.06.
- The Conway to Mont Belvieu ethane/propane mix spread shortened to about $0.09, with the differential as large as $0.15 in prior weeks.
- US propane stocks decreased about 1.2 MMBbl in this past week’s inventories. Stocks now sit at 67.5 MMBbl, about 9.5 MMBbl higher than in the first week of 2018, but 4.7 MMBbl lower than in the first week of 2017.