Triple-Digit Gas Injection Meets Market Expectation

Triple-Digit Gas Injection Meets Market Expectation

Natural gas storage inventories increased 106 Bcf for the week ending May 10, according to the EIA’s weekly report. This injection meets the market expectation, which was an inventory increase of 105 Bcf.

Thus far in 2019, lower-48 dry natural gas production is ~7.03 Bcf/d higher than the same period in 2018, while natural gas demand is up ~4.66 Bcf/d for the same period. Since injections started this season for the week ending March 29, 2019, total inventories have increased 546 Bcf. In 2018 for the same time frame, storage showed an injection of 155 Bcf.

Working gas storage inventories now sit at 1.653 Tcf, which is 130 Bcf above inventories at the same time last year and 286 Bcf below the five-year average.

At the time of this writing, the June 2019 contract was trading at $2.623/MMBtu, $0.022 above yesterday’s close of $2.601/MMBtu.

Prices traded in a narrow range this week for the June 2019 contract, trading between $2.601 and $2.659. The main driver of the price movement has been weather. Forecast changes will continue to be the main price driver as we get deeper into the summer and the expectations regarding how much gas will be needed for power burn becomes more of a reality.

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

This Week in Fundamentals

The summary below is based on Bloomberg’s flow data and DI analysis for the week ending May 16, 2019.

Supply:

  • Dry gas production decreased 0.14 Bcf/d. Most of the decrease came from the South Central/Gulf region, which fell 0.15 Bcf/d.
  • Canadian net imports decreased 0.13 Bcf/d on the week.

Demand:

  • Domestic natural gas demand increased 1.04 Bcf/d week over week. Res/Com demand accounts for most of the increase, gaining 1.18 Bcf/d, mainly due to cooler weather in the East. Power demand showed a drop of 0.35 Bcf/d, while Industrial demand gained 0.21 Bcf/d.
  • LNG exports increased 0.23 Bcf/d week over week, while Mexican exports increased 0.01 Bcf/d.

The ICE Financial Weekly Index report is currently expecting an injection of 110 Bcf. Last year, the same week saw an injection of 91 Bcf; the five-year average is an injection of 91 Bcf.

Prices Mixed as Middle East Tensions Offset the Bearish Inventory Report

Prices Mixed as Middle East Tensions Offset the Bearish Inventory Report

US crude oil stocks posted an increase of 5.4 MMBbl from last week. Gasoline inventories decreased 1.1 MMBbl and distillate inventories increased 0.1 MMBbl. Yesterday afternoon, API reported a large crude oil build of 8.6 MMBbl, alongside gasoline and distillate builds of 0.6 MMBbl and 2.2 MMBbl, respectively. Analysts, to the contrary, were expecting a crude oil draw of 2.1 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a significantly large increase of 14.6 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production decreased 100 MBbl/d last week, per the EIA. Crude oil imports were up 919 MBbl/d last week to an average of 7.6 MMBbl/d. Refinery inputs averaged 16.7 MMBbl/d (271 MBbl/d more than last week), leading to a utilization rate of 90.5%. Although inventory report is bearish due to large crude oil and total petroleum stocks builds, prices were mixed due to API reporting a larger crude inventory build and rising tensions in Middle East. Prompt-month WTI was trading up $0.04/Bbl, at $61.82/Bbl, at the time of writing.

Prices traded in the $61/Bbl to $62/Bbl range last week as they continued to face pressure mainly due to the US–China trade wars while getting support from the rising geopolitical tensions in Middle East as well as continuously declining Venezuelan production.

The announcement by the US government on raising tariffs on $200 billion worth of Chinese goods from 10% to 25% had already renewed worries about global economic and demand growth. Trade tensions escalated, further pressuring prices even more after China announced on Monday that it would raise tariffs on $60 billion of US goods to as high as 25% in retaliation for the tariff increase by the Trump administration. The escalating trade tensions between the two powerhouses have brought down the stock market as well, which also affected crude futures.

As prices see tremendous pressure from the US–China trade wars and a gloomy outlook for economic and demand growth, rising geopolitical tensions in the Middle East limited the decline in prices. The attack over the weekend on two Saudi crude tankers off the coast of the United Arab Emirates lifted prices as the attack happened near the strategic port of Fujairah close to the Strait of Hormuz, which is a very critical channel for global crude trade. Worries over a possible supply threat increased further on Tuesday after Saudi Arabia reported that “ armed drones ” attacked two pumping stations in the country. The events came just days after the US government stated it would send aircraft carriers and bombers to the area due to increased threat from Iran.

It is unclear what OPEC’s decision will be in terms of supply cuts, and the decision will most likely depend on Iranian production and global supply–demand levels in July as OPEC gears up for their meeting. Until then, both bearish and bullish headlines and rising geopolitical tensions and their potential impact on oil supply will most likely cause volatility and be the main drivers for prices. Any significant gains in prices will be capped by gloomy global economic and demand growth projections and continuously increasing US production.

Prices may continue to trade in a narrow range as the market seeks a fundamental reason to extend out of the range. Should prices extend beyond the range, it will likely be met with tremendous volatility. A break below $60.77/Bbl on a daily close will likely set up additional declines to the $57/Bbl–$58/Bbl area from early March. A break above $64.75/Bbl will likely take prices back up to the high end of the range at $67.00/Bbl.

Petroleum Stocks Chart

The Week Ahead For Crude Oil, Gas and NGL Markets – May 13, 2019

The Week Ahead For Crude Oil, Gas and NGL Markets – May 13, 2019

CRUDE OIL

  • US crude oil inventories posted a decrease of 4.0 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 0.6 MMBbl and 0.2 MMBbl, respectively. Total petroleum inventories showed a decrease of 1.7 MMBbl. US crude oil production decreased 100 MBbl/d last week per the EIA. Crude oil imports were down 721 MBbl/d to an average of 6.7 MMBbl/d versus the week prior. (For more analysis of weekly imports, please see the shipping section below.)
  • The WTI stayed within a narrow range for the week, setting both the highs and the lows of the week on Monday. The initial declines seemed to be based on the Trump administration’s announcement of additional tariffs (from 10% to 25% on certain goods) on Chinese imports and forced the market to re-appraise expected global demand. The breakdown of the trade talks brings doubts about the global economic growth that trade has been needing with the recent price run.
  • It is doubtful that the US objective of bringing Iran’s exports down to zero is achievable as China announced they will be continuing imports from Iran. The Venezuelan production declines and the rising geopolitical tensions between the US and Iran, and the potential supply disruptions these tensions are bringing, will continue to provide a strong floor to the declines. These events will also bring the potential for volatility, as the US deployed a carrier strike force to the region, signaling to Iran that any instability provoked by Iran will be met with “unrelenting force,” according to national security advisor John Bolton. The tanker attack on Saudi vessels over the weekend will certainly escalate the tensions between Iran and the US (though no one has claimed responsibility for the attack) and now adds the potential for the Saudis to alter their strategy by producing more to offset the Iranian reductions. This would likely pressure prices, punishing Iran even further.
  • The uncertainties surrounding the upcoming OPEC meeting and any decision regarding the supply cuts are likely to be determined by the effects of the US sanctions on Iran. Currently, with the US continuing its production growth, the expectation that Russia and Saudi Arabia will offset the loss from the Iran sanctions could potentially impact the OPEC decision.
  • The CFTC report (positions as of May 7) showed the Managed Money long component selling 24,164 contracts and the Managed Money short component increasing their positions for the second consecutive week, adding 10,706 contracts. It is becoming clear that the speculative sector is less enthusiastic about the price run that commenced early in the year.
  • The narrow trade range left the market internals with a neutral bias. The range trade brought an increase in volume and a slight increase in open interest (on preliminary data from the CME) as participants evened their positions without a fundamental event to influence directional bias. The attack in the Straits of Hormuz on the Saudi tanker will give the support necessary to raise prices more to the middle of the range. The price on Friday remains at the low end of the recent range, between $60 and $67.
  • Prices may continue to range-trade as the market seeks a fundamental reason to extend out of the range. Should prices extend beyond the range, it will likely be met with tremendous volatility. A break below $60.77 on a daily close will likely set up additional declines to the $57-$58 area from early March. A break above $64.75 will likely take prices back up to the high end of the range at $67.00.

NATURAL GAS

  • Natural gas dry production showed a decrease of 0.39 Bcf/d. Canadian imports also decreased by 0.15 Bcf/d.
  • Res/Com demand declined 3.68 Bcf/d, while Power and Industrial demand decreased 0.40 Bcf/d and 0.36 Bcf/d, respectively. LNG exports gained 0.27 Bcf/d, while Mexican exports increased by 0.21 Bcf/d. These events left the totals for the week showing the market dropping 0.54 Bcf/d in total supply while total demand fell by 4.68 Bcf/d.
  • The storage report last week showed injections for the previous week at 85 Bcf. Total inventories are now 128 Bcf higher than they were last year and 303 Bcf below the five-year average.
  • The CFTC report (as of May 7) showed the Managed Money long sector increasing positions by 7,128 contracts, while the Managed Money short position increased by 6,016 contracts. With prices continuing to consolidate between $2.47 and $2.656, the speculative community expects a retest at the low end of the range (growth in the speculative short position over the last month), but there is a growing level of trade that is taking a more bullish position.
  • Market internals maintain the consolidation nature of the market as volume and open interest increased slightly week over week. Momentum indicators have returned to a neutral position with the increase last week.
  • Prices remain range-bound, but the extension last week took prices higher, to $2.647, the highest level since mid-April at $2.653. This area is a key near-term area for traders as a break above on a daily close will likely take prices up to $2.72. It remains unlikely that this market will see a dramatic move in either direction until the summer demand is better defined. Should the trade not confirm the range expansion up, then a decline to last week’s low ($2.514), and possibly down to $2.47, should be expected. The deferred strips and their price behavior continue to remain positive and should give a clue as to the near-term direction of this market. Declines should bring the winter strip down as well, which did not occur during last month’s declines that went under $2.50.

NATURAL GAS LIQUIDS

  • Purity product prices were down across the board last week. Ethane dropped $0.013 to $0.224, with propane down $0.008 to $0.600, normal butane down $0.046 to $0.652, isobutane down $0.052 to $0.658, and natural gasoline down $0.019 to $1.268.
  • US propane stocks increased ~1.0 MMBbl the week ending May 3. Stocks now sit at 60.0 MMBbl, roughly 21.3 MMBbl and 18.3 MMBbl higher than the same week in May 2018 and May 2017, respectively.

SHIPPING

  • For the week ending May 10, US waterborne imports of crude oil were 3.184 MMBbl/d, according to DrillingInfo’s analysis of customs manifests received up to May 13. That represents a slight decline for the week. The biggest decline in imports was in PADD 1, while imports to PADD 3 increased, surpassing 1.7 million barrels per day for the week.
  • Last week’s EIA report showed preliminary imports from Saudi Arabia at 311 MBbl/d for the week of May 3, the lowest level since the EIA began to report that detail in 2010. Drillinginfo manifest data had imports for Saudi Arabia for the same week at 287 MBbl/d. Imports from Saudi Arabia increased this week, with imports at nearly 544 MBbl/d. So far in May, Saudi imports are below 500 MBbl/d. Should imports from Saudi Arabia remain below that mark, it would be the first time US imports from Saudi Arabia dropped below half a million since May 1987. PADD 3 imports of Saudi crude have actually bounced back since earlier this year, with the main factor being Motiva Port Arthur (Saudi Aramco’s refinery) resuming imports of Saudi crude. On the other hand, PADD 5 imports have been steadily decreasing since January. The big driver of this has been declining imports at the Carson refinery in the Los Angeles area and the Golden Eagle refinery in the San Francisco Bay area. These refineries are now owned by Marathon.
Introducing Drillinginfo’s MarketView Fundamentals: Make Sense of All the Noise

Introducing Drillinginfo’s MarketView Fundamentals: Make Sense of All the Noise

Energy and commodities traders and analysts need accurate information quickly in order to make profitable decisions. Often, the old saying, “too much of a good thing is a bad thing,” applies when they’re conducting research. They search public data sources and volumes of online information, then spend hours, even days, sifting through all that raw data to find what’s useful. There are no solutions to quickly distill virtual mountains of information into actionable intelligence.

Until now.

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Stronger Together

MarketView Fundamentals is a suite of several Drillinginfo Commodity Data Solutions (CDS) products delivered in a single tab in the MarketView Desktop platform to provide users with access to a comprehensive collection of global energy and commodity market data.

What makes MarketView Fundamentals so powerful, is that it combines the features and databases of market-leading solutions we added to our portfolio over the last couple of years through acquisitions including Ponderosa Energy and Pattern Recognition Technologies (PRT). The foundational data is vast and taps into our 20-year history of providing data to the O&G industry.

MarketView Fundamentals comprises six products:

  1. DI Rig Analytics — Proprietary to Drillinginfo, Rig Analytics tracks more than 95 percent of the active rigs in the U.S. through GPS units to deliver the most accurate data in real-time. Drillinginfo is the only company that leverages GPS coverage to deliver rig count data that serves as an early indicator of supply trends — a key part of tracking market fundamentals.
  2. DI Prodcast — An O&G production forecasting tool that includes a guidance-based forecast for 70+ operators, taking into account CAPEX, number of wells drilled/completed, etc. and calculates operator-level break even economics. It also forecasts long-term production based on 300+ breakouts of producing areas across the country down to the Basin/Play/Subplay/Tier level. This interactive forecasting solution allows users to run their own scenarios by utilizing user-defined inputs for key forecast variables in order to better understand and quantify forecast sensitivities.
  3. DI OptiFlo Gas — A pipeline optimization model that analyzes the natural gas interstate pipeline network in the U.S. It links the Prodcast dry natural gas production forecasts to demand via pipeline transportation paths. It is easier and faster to use than competitive solutions that require the creation of large, complex models that take hours or days to run. Users quickly get answers to all questions related to pipeline investment, management, etc.
  4. DI Wellcast — An asset-specific tool that allows a user to choose an area or other definition of production (i.e., operator, county, etc.) and forecast production. Users can evaluate assets or transactions in minutes or hours instead of days. It’s fast, easy to use, and designed to assist decision-makers as they simultaneously vet numerous assets and transactions.
  5. PRT — Provides power load and price forecasts for power regions and sub-regions. It is the most accurate forecast offering available in the market, and serves traders, utilities, marketers, and other power market participants. PRT delivers regional load, wind generation, and price forecasts twice a day Monday through Friday, plus a weekly summary. The cadence of this information is invaluable to traders who follow the U.S. power and natural gas markets, which are amongst the most liquid in the world.
  6. FundamentalEdge — Drillinginfo’s proprietary market forecast report that delivers supply/demand analysis along with forward-looking predictions 5 years out for crude, natural gas, and NGL markets. Analysis includes production forecasts, import/export analysis, infrastructure tracking and analysis, demand forecast, price forecasts, etc.

That’s a high-level introduction to all the MarketView Fundamentals components. To learn more, visit the MarketView Fundamentals section of our web site: http://www.marketview.com/our-solutions/marketview-fundamentals/.

In future posts, I will take a closer look at how our customers can use MarketView Fundamentals to customize their MarketView Desktop platform. Up next — how incorporating Prodcast, our natural gas, crude, and NGL production forecasting software, delivers the most dynamic functionality in the market.

We always welcome feedback and suggestions from our customers, so please don’t hesitate to connect with me and the team on Twitter and Facebook.

Gas Storage Build In Line with Expectations

Gas Storage Build In Line with Expectations

Natural gas storage inventories increased 85 Bcf for the week ending May 3, according to the EIA’s weekly report. This injection was in line with market expectations, which were for an inventory increase of 86 Bcf.

Thus far in 2019, lower 48 dry natural gas production is ~7.1 Bcf/d higher than it was for the same period in 2018, while natural gas demand is up ~4.63 Bcf/d for the same period. Since injections started this season for the week ending March 29, total inventories have increased 355 Bcf. For the same time frame in 2018, storage showed a net draw of 40 Bcf.

Working gas storage inventories now sit at 1.547 Tcf, which is 128 Bcf above inventories at the same time last year and 303 Bcf below the five-year average.

At the time of this writing, the June 2019 contract was trading at $2.577/MMBtu, $0.033 below yesterday’s close of $2.610/MMBtu.

Natural gas demand rose last week, driven by cooler weather causing a Res/Com demand increase in the East, Midwest, and Mountain regions, while the South Central/Gulf saw warmer weather and increased power burn. However, demand has fallen off during the current week, and injections are expected to ramp back up to triple digits.

The production increases the market has endured year over year will help get inventories close to the five-year average by the end of injection season. Drillinginfo currently expects EOS inventories to fall between 3.6 Tcf and 3.7 Tcf. Should power burn be greater than the 10-year average, inventories are currently expected to land ~200 Bcf below the five-year average, which currently sits at ~3.68 Tcf.

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

This Week in Fundamentals
The summary below is based on Bloomberg’s flow data and DI analysis for the week ending May 9, 2019.

Supply:

  • Dry gas production was down week over week, losing 0.23 Bcf/d.
  • Canadian net imports were unchanged.

Demand:

  • Domestic natural gas demand decreased 3.9 Bcf/d week over week. Res/Com demand showed the largest decrease, dropping 3.8 Bcf/d. Power demand showed a gain of 0.36 Bcf/d, while Industrial demand fell 0.40 Bcf/d.
  • LNG exports increased 0.30 Bcf/d week over week, while Mexican exports increased 0.12 Bcf/d.

 

Total supply is down 0.26 Bcf/d, while total demand decreased 3.51 Bcf/d week over week. With demand decreasing significantly more than supply did for the week, expect the EIA to report a stronger injection next week. The ICE Financial Weekly Index report is currently expecting an injection of 105 Bcf. In 2018, the same week saw an injection of 106 Bcf; the five-year average is an injection of 89 Bcf.