DI Blog

Insights across the energy value chain

CRUDE OIL

  • US crude oil inventories posted an increase of 5.4 MMBbl last week, according to the weekly EIA report. Gasoline inventories decreased 1.1 MMBbl and distillate inventories increased 0.1 MMBbl/d. Total petroleum inventories showed a large increase of 14.6 MMBbl. US crude oil production decreased 100 MBbl/d last week per EIA. Crude oil imports were up 919 MBbl/d, to an average of 7.6 MMBbl/d, versus the week prior.
  • The WTI price struggle continued last week as the two main drivers — geopolitical unrest in the Middle East driving buying and global economic worries pushing selling — pushed the market slightly higher over the week.
  • The attack on the Saudi Arabian tankers off the coast of the United Arab Emirates (no entity has claimed responsibility) was followed by an armed drone attack on two Saudi Arabian pumping stations. These events outweighed the bearish inventory report on Wednesday, as prices continued to strengthen into Friday’s trade. These events occurred after the Trump administration issued the news that a carrier strike force and B-52 bombing force were being sent to the region to protect American and allies’ interests there. Over the weekend, Saudi King Salman Bin Abdulaziz called on the Gulf Cooperation Council members and Arab countries to hold emergency meetings on May 30 to address the recent attacks.
  • This bullish news was offset by the expansion of the tariff issues between China and the US. The US announced it was raising the tariffs from 10% to 25% on Chinese goods totaling $200 billion. The Chinese then announced they would increase tariffs on $60 billion of US goods. The market has little hope of a near-term resolution to the tariffs. President Trump declared he would address the issue with Chinese President Xi Jinping at the upcoming G-20 summit in June.
  • Another development that didn’t impact prices, but should have had a negative impact, was the inventory release on Wednesday. Should the market start to discount the potential of a war between Saudi Arabia and Iran, then the focus of the trade will be redirected to the supply/demand imbalance and global inventories.
  • The supply/demand situation will likely direct the upcoming OPEC meeting, and any decision regarding continuing the supply cuts or lessening the reductions will have substantive impact on price. The effects of the US sanctions on Iran and the continuing declining Venezuelan output will be addressed during this meeting, and the outcome is currently unknown. One element to world inventories that is not in doubt is that US production is continuing its growth and will continue to gain market share of world demand.
  • The CFTC report (positions as of May 14) showed the Managed Money long component selling 14,613 contracts while the short position increased its positions slightly, for the third consecutive week, adding just 1,976 contracts. The producer sector hedged (short position increased) an additional 29,530 contracts as prices rallied over $63.00.
  • Prices continue to trade with a neutral bias. The slight expansion of the range trade brought an increase in volume week over week, but a slight decrease in open interest (on preliminary data from the CME). Participants seem content to take a cautionary bias in the market waiting for directional confirmation supported with news events. Should the calming claims against military action among the participants pressure prices, the commonly traded 200-day average (currently at $60.58) is a target for declines. This has held all the declines (on a daily closing basis) since early March.
  • Should Iran continue to promote insecurity and uncertainty with additional provocations (though the tanker attack is still being investigated), then prices will likely head north, challenging the $64.75 area up to $67.00. This type of action would clearly benefit the Iranian regime, but risks the potential retaliation of increasing output by Saudi Arabia, thereby diminishing the longer-term impacts of the provocations. Regardless of the two directional sides to prices, higher volatility should be expected in the coming weeks.

NATURAL GAS

  • Natural gas dry production showed a slight increase of 0.03 Bcf/d, while Canadian imports decreased by 0.09 Bcf/d.
  • Res/Com demand showed a rise of 0.69 Bcf/d, while Power and Industrial demand increased 0.20 Bcf/d and 0.08 Bcf/d, respectively. LNG exports gained 0.22 Bcf/d, while Mexican exports increased 0.02 Bcf/d. Totals for the week have the market dropping 0.06 Bcf/d in supply while demand increased 1.23 Bcf/d.
  • The storage report last week showed the injections for week ending May 10 at 106 Bcf. Total inventories are now 130 Bcf higher than last year and 286 Bcf below the five-year average.
  • The CFTC report (as of May 14) showed the Managed Money long sector decreasing positions by 9,912 contracts, while the short position decreased 7,665 contracts. With both elements reducing exposure, evidence is starting to mount that the speculative trade is becoming wary and uncommitted to future movements.
  • Market internals maintain the consolidation nature of the market as it trades between $2.66 and $2.52. Volume decreased week over week while open interest increased. Momentum indicators remain neutral with the increases over the past couple of weeks.
  • Prices remain range bound, but the extension higher last week took prices to $2.67, setting the trend of higher highs over the past three weeks. This area is a key near-term area for traders, as a daily close above the commonly traded 50-day moving average ($2.657), which has withheld rallies since it broke down in December ’18, will likely bring a test of the key area around $2.72. It remains unlikely this market will see a dramatic move in either direction, but the market has been showing some internal constructive bias over the past couple of weeks. Should the trade not confirm the range expansion up, then a decline to previous week’s low at $2.586, and possibly down to $2.47, should be expected.
  • The winter strip continues to remain positive and has found solid support around $2.835 since the beginning of the year. This strip will become an indicator for prices during the summer, as it reflects a mid-term perception of where prices are headed. Should it remain well supported, the volatility in the prompt contract should be discounted appropriately to reflect near-term fundamentals.

NATURAL GAS LIQUIDS

  • SemCAMS Midstream and Keyera announced a joint venture last week to build an NGL and condensate pipeline. The pipeline will take growing production from the Montney and Duvernay plays to the frac hub in Fort Saskatchewan, Alberta. This pipeline will replace the previously announced SemCAMS Montney to Market pipeline. Construction is expected to begin in the back half of 2020.
  • All purity product prices stayed within a +/- $0.01 change week over week. Ethane dropped $0.002 to $0.222, Propane gained $0.005 to $0.600, Normal Butane fell $0.006 to $0.646, Isobutane fell $0.003 to $0.655, and Natural Gasoline gained $0.004 to $1.272.
  • US propane stocks increased ~2.8 MMBbl the week ending May 10. Stocks now sit at 62.7 MMBbl, roughly 22.4 MMBbl and 20.5 MMBbl higher than the same week for May 2018 and May 2017, respectively.

SHIPPING – DI shipping content is produced using DI’s new import manifest tool. Please contact Bert Gilbert (bert.gilbert@drillinginfo.com) for more details.

  • US waterborne crude imports increased for the week ending May 17, according to DrillingInfo’s analysis of manifests from US Customs & Border Patrol. Both PADD 1 and PADD 3 increased, with PADD 3 recording nearly 2.16 MMBbl/d as of May 20. PADD 1 was at 720 MBbl/d, while PADD 5 appeared to decline and stood at 969 MBbl/d. Our estimate was lower than that of the EIA last week, and that appears to have been driven primarily by a difference in imports from Iraq. DI was expecting imports from Iraq to be around 160 MBbl/d while the EIA reported over 520 MBbl/d, reflecting a nearly 2.5 MMBbl difference for the week.
  • Much of the difference in Iraqi imports could be attributed to the tanker Pantariste, which delivered 1.9 MMBbl of Iraqi crude to LOOP on May 10. In our method, this vessel was assigned to the week of May 17, but it would appear the EIA may have assigned it to the week ending May 10. There is grey area in this, as the EIA weekly numbers have their week ending at 7am ET on Fridays. Given this, the EIA number for PADD 3 could be lower than our expectation, at approximately 1.885 MMBbl/d.

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