DI Blog

Insights across the energy value chain

CRUDE OIL

  • US crude oil inventories posted a decrease of 1.1 MMBbl last week, according to the weekly EIA report. Gasoline inventories decreased 1.6 MMBbl while distillate inventories increased 1.4 MMBbl. The total petroleum inventories showed an increase of 2.5 MMBbl. US crude oil production increased 100 MBbl/d last week per EIA. Crude oil imports were down 0.9 MMBbl/d, to an average of 7.6 MMBbl/d, versus the week prior.
  • Prices tried to keep the bullish momentum from the previous week rolling forward, but the concerns about slowing global economies and the slowing’s effect on demand took the starch from the momentum trade out. Bullish momentum had been based on the geopolitical tensions between the US and Iran, and this week the market will have to address the seizure of an Iranian tanker by the United Kingdom. The Iranian position acknowledged the origin of the oil and that the tanker took the circuitous route around Africa rather than through the Suez Canal (requiring it to offload some of the oil prior to reaching the Canal). The UK stated that the tanker was destined for Syria; therefore, it was violating the EU sanctions on Syria.
  • The seizure event prevented further declines at the end of the week and may provide additional support to prices over the geopolitical drama playing out in the Middle East. The outcome from the OPEC+ meeting last week provided a brief run in prices but with the retracement mid-week, it became clear the expectation of the production cuts (lasting through March 2020) was already baked into the price.
  • The WTI market continues to be affected by the concerns surrounding global economic health and the lack of any growth from some of the major economies. The US and China tariff agreement simply put any additional tariffs on hold but does nothing to address the 25% tariff on $250 billion of Chinese goods currently in place. The market began to comprehend that the existing tariffs have already had a deleterious effect on economies and demand growth, as the factory and manufacturing activity over Europe and Asia underscores the slowing demand.
  • The CFTC report was not issued last Friday due to the holiday. The market internals represent a more neutral bias with the declines. Volume was down with a slight increase in open interest week over week during the shortened trade week. Prices this week will likely focus on geopolitical issues in the Middle East, but any probes higher will run into the larger concerns surrounding the lack of demand and growth in the world’s economies.
  • Prices will likely continue to consolidate in the recent range – between $56.00/Bbl and $60.00/Bbl – as the market digests the struggle between the Middle East tension and the lack of global demand growth. It is unlikely that either of the issues will be solved quickly, and this recent range and the broader range – $50/Bbl to $64/Bbl – may hold prices until the market resolves the competing issues later in the year.

NATURAL GAS

  • Natural gas dry production showed an increase of 0.30 Bcf/d, while Canadian imports increased by 0.52 Bcf/d.
  • Res/Com demand decreased 0.16 Bcf/d, while power demand increased 2.63 Bcf/d and industrial demand decreased 0.11 Bcf/d. LNG exports gained 0.13 Bcf/d during the week, while Mexican exports gained 0.20 Bcf/d. These events left the totals for the week showing the market gaining 0.82 Bcf/d in total supply, while total demand increased by 2.77 Bcf/d.
  • The storage report last week showed the injections for the previous week at 89 Bcf. Total inventories are now 249 Bcf higher than last year and 152 Bcf below the five-year average. With the demand gain outpacing the supply gain, expect the EIA to report a weaker injection this week.
  • Weather last week brought growth in power demand, and the forecasts for the upcoming two weeks have flipped much warmer than previously forecasted. The heat will expand through-out the CONUS. It should be expected that the coming three storage reports will bring significantly lower injections.
  • The CFTC report was not released last Friday (due to the holiday). The forecast changes will likely support more short covering as heat builds and supports power demand.
  • Prices rebounded last week with most of the gains occurring late in the week, as the forecasts for the upcoming weeks changed. The rally, which took out some low risk selling opportunities, may have forced participants to cover some weak short positions. Market internals changed to a more neutral/bearish bias on the rally Friday, as volume was significantly higher, but it was still slightly lower week over week. Total open interest increased on the week (regardless of the holiday), according to preliminary data from the CME.
  • The fundamental indicators have changed with the weather forecasts but remain slightly bearish over the summer period. Any rally in the coming weeks will have to work through the selling that will occur between $2.444 and $2.522, where the market broke down in late May. With the change in the fundamental forecasts, declines down to $2.30-$2.263 will find buyers. The market remains range-bound, with a slightly negative bias. A break above $2.522 on a daily close will bring the bias to a neutral stature.

NATURAL GAS LIQUIDS

  • Over the holiday, ethane spot was $0.13, 16% lower than the last week in June. Other purities were down across the board. Propane was down 2.3% to $0.45, Normal Butane down 3.1% to $0.505, Iso Butane down 4.2% to $0.595, and Natural Gasoline was down 1.1% to $1.115.
  • US propane stocks increased ~1.3 MMBbl the week ending June 28. Stocks now sit at 77.2 MMBbl, roughly 18.8 MMBbl and 18.7 MMBbl higher than the same week in 2018 and 2017, respectively.

SHIPPING

  • US waterborne imports of crude oil rose for the week ending 07/05 according to DrillingInfo’s analysis of manifests from US Customs & Border Patrol. As of 07/08, the data showed that PADD 3 increased slightly, up to 1.54 million barrels per day, while PADD 5 imports saw the biggest gain, rising to nearly 1.16 million barrels per day. PADD 1 imports fell to 460 MBbls/d, with no imports arriving to the shuttered PES Philadelphia Refinery.

  • Imports from Iraq rose to more than 720 MBbls/d, the highest level of imports from the country since mid-January. We are continuing to see higher than usual imports of Nigerian crude to PADD 5, a trend that has been ongoing for several months. As the chart shows, that appears to be continuing in June, with Marathon taking a cargo of Bonga aboard the Filikon.

  • Vessel tracking data show that the Filikon received its cargo from the VLCC Arafura, which had already discharged a partial cargo at Long Beach. Bonga has been the largest import so far this year (see pie chart).

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