Injection Lower Than Expected, Prices Rise on EIA Release

Injection Lower Than Expected, Prices Rise on EIA Release

Natural gas storage inventories increased by 46 Bcf for the week ending July 13, according to the EIA’s weekly report. This injection is much lower than market expectations, which were an injection of 54 Bcf. The August 2018 contract was trading at $2.72 before the EIA report, in-line with yesterday’s close of $2.72. Since then, prices have increased, with the August 2018 contract trading at $2.77 at the time of writing.

Working gas storage inventories now sit at 2.249 Tcf, which is 710 Bcf below last year and 535 Bcf below the 5-year average.

Looking ahead, there are 16 weeks left of this injection season. To reach last year’s inventory levels of 3.79 Tcf, we will need to have an average injection of 96.3 Bcf/week. With this level of inventory looking out of reach, Drillinginfo expects end-of-season inventory to come in at 3.5 Tcf.

Looking at inventory as of the end of June since 2010, the three main regions lagging are the East, Midwest, and South. These lower inventories can be attributed to the winter weather extending into late April 2018, as well as higher than normal power burn for the foregone portion of summer 2018. As the summer continues, weather will play a significant role in these regions reaching an acceptable level of inventory. Weather forecast reports anticipate the warm weather to settle for the remaining summer, which could prove significant to reaching comfortable inventory levels. For the remaining injection season, it will be worth keeping an eye on the East, Midwest, and South regions to see how their respective inventory levels play out.

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 PointLogic’s flow data and DI analysis for the week ending July 19, 2018

Supply:

  • Dry gas production is down 0.58 Bcf/d week-on-week, with total dry production at 80.30 Bcf/d. Texas (-0.32 Bcf/d) and the Southeast (-0.16 Bcf/d) cause a majority of the decrease.
  • Canadian imports are up 0.05 Bcf/d week-on-week.

Demand:

  • Domestic natural gas demand increased by 2.11 Bcf/d week-on-week, with the increase in power burn (+2.56 Bcf/d) being the main driver. This increase has total domestic demand at 65.27 Bcf/d for the week.
  • LNG exports were up 0.17 Bcf/d week-on-week while Mexican exports were down 0.16 Bcf/d.

Total supply is down 0.52 Bcf/d and total demand is up 2.36 Bcf/d week-over-week. With demand outpacing supply, expect EIA to report a lower injection next week. Last year’s injection for the same week was 17 Bcf while the 5-year average is 43 Bcf.

EIA Shows Record US Production & Surprise Crude Stocks Build

EIA Shows Record US Production & Surprise Crude Stocks Build

US crude oil stocks increased 5.8 MMBbl last week. Gasoline and distillate inventories decreased 3.2 MMBbl and 0.4 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 0.63 MMBbl, alongside a gasoline draw of 0.43 MMBbl and a distillate build of 1.71 MMBbl. Analysts, on the contrary were expecting a crude oil draw of 3.6 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a sizable build of 6.0 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production was estimated to be up 100 MBbl/d from last week, per EIA. Crude oil imports were up 1.64 MMBbl/d last week, to an average of 9.1 MMBbl/d. Refinery inputs averaged 17.2 MMBbl/d (413 MBbl/d less than last week), leading to a utilization rate of 94.3%. The report is bearish due to higher than expected crude oil and total petroleum stocks build. Increasing global supply, weaker demand, rise in US crude inventories, and EIA reporting record US production with 11 MMBbl/d are also pressuring prices. Prompt-month WTI was trading down $0.05/Bbl, at $68.04/Bbl at the time of writing.

Prices continued their decline into the weekend as a series of bearish news continued to hit the market reversing sentiment, causing WTI to slump nearly 5% on Monday. WTI prices beginning of the week have been trading nearly 10% less than the three-year high levels seen just over a week ago.

Prior to the sharp decline on Monday, prices were trading near their three-year highs supported by bullish news and supply shortage expectations. Sanctions on Iranian crude and US calling its allies to cut imports to zero from the country has been the main catalyst for the price rally. Helping the price rally was also Venezuela’s terminally declining production, and short-term supply outages from Libya, Canada, and Norway. Following the price rally, OPEC decided to increase supply levels in order to offset the production declines and balance the market. Russia joined Saudi Arabia in this quest which gave the market signals that supply levels would soon rise, however skepticism if additional barrels would be enough to offset the declines settled in the market.

Saudi Arabia increasing production by 0.5 MMBbl/d in June, while Russia increasing production to 11.1 MMBbl/d in first week of July, surely increased the bearish sentiment but was not enough to cause a price drop. Prices saw further pressure after Libya reopened its ports ramping up supply levels and US-China trade wars escalated further.

Sentiment quickly shifted on Monday following a series of bearish news which cause prices to tank. Biggest catalysts causing prices to tank were: 1) News on Trump administration’s consideration of tapping into US Strategic Petroleum Reserve if supply outages worsen. 2) News on potential for US waivers on Iranian crude sanctions. These two headlines would have been enough to cause sharp drop in prices, however IMF showing a slowdown in global economic growth and news on Saudi Arabia offering extra crude on top of contractual supplies to the Asian market signaling they have room to increase production,  added more fuel to the fire, sending prices to a downward spiral.

With prices for WTI reversing off the early strength, especially declining last week despite a very bullish inventory report, the high end of the current trade range has likely been established at the recent high ($75.27). The low side of the new range is likely last week’s low, down to the late June lows around $67. With all the bearish news spinning around in the market, price action will continue to be volatile, similar to what it was last week and could test $65/Bbl levels if bearish events continue to appear. Eventually, after the volatility recedes and consolidation commences, current events and continued US growth may force a retracement of prices into a zone between $60 and $65.

Petroleum Stocks Chart

The Week Ahead For Crude Oil, Gas and NGLs Markets – 7/16/2018

The Week Ahead For Crude Oil, Gas and NGLs Markets – 7/16/2018

CRUDE OIL

  • US crude oil inventories decreased by 12.6 MMBbl, according to the weekly EIA report. Gasoline inventories decreased by 0.7 MMBbl, and distillates increased 4.1 MMBbl. Total petroleum inventories showed a large withdrawal of 7.2 MMBbl. US production was estimated to be up 29 MBbl/d on the week. Crude oil imports were down 1.6 MMBbl/d to an average of 7.4 MMBbl/d versus the week prior.
  • The WTI market continued its bullish bias early in the week, rising back above $74 on the similar news that closed out the week prior: (1) concerns about whether the increase in output from OPEC was going to be able to offset the losses from the continuing short-term declines in output from Libya (declining from 1.28 MMBbl/d to 500 MBbl/d) and the Canadian oil sands; (2) the longer-term declines from Venezuela; and (3) impact of the restored ban on Iranian imports by the US and our allies. These concerns, which have been supporting the recent price advance, received some updates as the week went on; Libya’s state-run National Oil Corp. announced a potential 700 MBbl/d of oil flowing back into the world market, and a potential softening from Washington raised the possibility that allies could buy some Iranian crude despite the reintroduction of sanctions.
  • In addition to the factors above, escalating US-China trade tensions increased the worries of global demand growth, as the Chinese revealed the lowest crude imports into the country since December. These elements, along with the increases in Saudi and Russian production and continuously increasing US production, turned out to be too much for the bulls to overcome and forced some weakness during the latter half of the week, taking prices below $70 ($69.23), which then bounced to close the week at $70.58.
  • As discussed last week, the gains in prices just before the holiday were spurred by a significant increase in the managed-money long position, as identified in the delayed release of the CFTC reports. The CFTC report dated July 3 showed a significant gain of 47,854 contracts in the managed-money long position. The CFTC report dated July 10 revealed a slight gain in positions of 1,185 contracts. During the collapse in prices at the end of the week, the separation between August and September dropped dramatically, but it is still trading at a large $1.06 premium for the August contract. Expect a decline in the managed-money length with the price declines at the end of the week. With this adjustment to the spread, the previously discussed potential of a “blow off top” type of event has been mitigated.
  • With prices for WTI reversing off the early strength, especially declining with the release of a very bullish inventory report, the high end of the current trade range has likely been established at the recent high ($75.27). The low side of the new range is likely last week’s low, down to the late June lows around $67. With all the news issues spinning around in the market, price action will continue to be volatile, similar to what it was last week. Eventually, after the volatility recedes and consolidation commences, current events and continued US growth may force a retracement of prices into a zone between $60 and $65.

NATURAL GAS

  • Natural gas dry production decreased by 0.44 Bcf/d, falling below the record-high 81 Bcf/d production of the previous week. The declines were spread across all regions, with the one exception being the Gulf. Canadian imports decreased 0.31 Bcf/d.
  • The US power demand declined 0.91 Bcf/d on the week, while Res/Com increased 0.62 Bcf/d and industrial demand increased 0.12 Bcf/d. LNG exports declined slightly, falling 0.21 Bcf/d on average, and Mexican exports gained 0.16 Bcf/d on the week. These events left the totals for the week showing the market losing 0.75 Bcf/d in total supply, while total demand was down 0.26 Bcf/d.
  • The storage report last week came within expectations, with an injection of 51 Bcf. The initial response had a bearish bias on the release and held prices down for the rest of the day. With the heat two weeks ago, this could possibly be the lowest injection of the season. The coming week’s injection is expected to be higher than last week’s.
  • Prices opened the week testing resistance around the commonly watched 200-day moving average ($2.875), only to succumb to the bearish bias from the previous week. The CFTC report dated July 3, which was delayed until last Monday, had the managed-money long positions liquidating 23,968 contracts; the CFTC report dated July 10 had the managed-money long positions liquidating another 14,513 contracts. While this liquidation was occurring, the managed-money short positions increased by 43,111 contracts over the two reports (over 40%). This position modification of average daily volume and slight gains in total open interest suggest that the market is expecting additional declines as it becomes more convinced of ending storage levels.
  • Fundamental expectations support additional price declines with temperatures starting to moderate in the East and Mid-Con regions. Only Texas will hold onto the above-normal temperature readings over the coming two weeks. Production, which declined this past week, continues to press near-weekly records.
  • The historical seasonal trend for prices after July promotes additional declines as the market becomes comfortable with season-end storage forecasts. As this evaluation becomes clearer, expect prices to range trade, with a price negative bias in the near term. Contributing to the sentiment for decline is the move from the aforementioned highs of March and April to the 20-week moving average. Below that, the lows for August gas in April and May were $2.727-$2.736. Price rallies will run into sellers at the old support ($2.875).

NGLs

Announcements

  • On July 10, Mont Belvieu ethane prices reached levels not seen since February 2014, 39.75 cpg. Exports are up, hitting a record high of 319 MBbl/d in April, according to EIA, and are likely to remain high over the next couple of months, as supply remains comparatively stable. The curve continues to reflect backwardation, dropping 2 cents next month and a large drop in Q1 2019.
  • Permico Midstream was granted Nueces County tax incentives for its NGL pipeline project from the Permian to Corpus Christi. The company was relieved of paying property taxes for its pipeline and fractionator in the county, home to one of the fastest-growing NGL exporting ports.

Propane Inventories

  • Inventories this past week reported a build of 2.4 MMBbl, according to last week’s EIA report. Propane stocks now sit at 63.6 MMBbl, approximately 3 MMBbl higher than at this time last year and 4.2 MMBbl lower than the five-year average.

EIA Reports Lower Than Expected Injection

EIA Reports Lower Than Expected Injection

Natural gas storage inventories increased by 51 Bcf for the week ending July 6, according to the EIA’s weekly report. This injection is slightly lower than market expectations, which were expecting 53 Bcf. The August 2018 contract was trading at $2.82, marginally lower than yesterday’s close of $2.83. Since then, prices have taken a minor drop, with the August 2018 contract trading at $2.80 at the time of writing.

Working gas storage inventories now sit at 2.203 Tcf, which is 725 Bcf below last year and 519 Bcf below the 5-year average.

Looking ahead, there are 17 weeks left of this injection season. In order to reach last year’s inventory levels of 3.79 Tcf, we will need to have an average injection of 93.4 Bcf/week. With summer heat in full swing and power burn nearly 4 Bcf/d above the 5-year average, it is looking more and more unlikely inventory will reach that level despite recent gains seen in production growth. Drillinginfo expects inventories will end the season at 3.5 Tcf, a record low. To reach Drillinginfo’s inventory expectation of 3.5 Tcf, storage injections will need to average ~76 Bcf/week for the remainder of the injection season.

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 PointLogic’s flow data and DI analysis for the week ending July 12, 2018.

Supply:

  • Dry gas production is down 0.45 Bcf/d week-on-week, with the Rockies (-0.13 Bcf/d) and the Northeast (-0.12 Bcf/d) being the main drivers of this decrease.
  • Canadian imports are down 0.34 Bcf/d week-on-week.

Demand:

  • Domestic natural gas demand decreased by 0.58 Bcf/d week-on-week, leaving total domestic demand at 62.57 Bcf/d for the week.
  • LNG exports were down 0.18 Bcf/d week-on-week while Mexican exports were up 0.16 Bcf/d.

Total supply is down 0.78 Bcf/d and total demand is down 0.69 Bcf/d week-over-week. With supply down more than demand, expect a weaker injection next week. Last year’s injection for the same week was 27 Bcf while the 5-year average is 57 Bcf.

Prices Are Down Despite Record Crude Draw Due To Escalating Trade Wars

Prices Are Down Despite Record Crude Draw Due To Escalating Trade Wars

US crude oil stocks decreased 12.6 MMBbl last week. Gasoline inventories decreased 0.7 MMBbl, while distillate inventories increased 4.1 MMBbl. Yesterday afternoon, API reported a large crude oil draw of 6.79 MMBbl, alongside a gasoline draw of 1.59 MMBbl and a distillate build of 1.96 MMBbl. Analysts were expecting a smaller crude oil draw of 4.49 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a large withdrawal of 7.2 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production was estimated to be up 29 MBbl/d from last week, per EIA. Crude oil imports were down 1.6 MMBbl/d last week, to an average of 7.4 MMBbl/d. Refinery inputs averaged 17.7 MMBbl/d (1 MBbl/d less than last week), leading to a utilization rate of 96.7%. The report is bullish due to significantly large crude oil and total petroleum stocks withdrawal. However, news that Libya is indicating it will slowly resume export activities as well as escalating US-China trade wars is working against the bullish sentiment. Prompt-month WTI was trading down $1.84/Bbl, at $72.27/Bbl at the time of writing.

WTI prices traded in the $72-$74/Bbl range last week. Prices have been trading around their three-year highs since the Trump administration demanded that all countries cut their Iranian oil imports to zero by November as well as terminally declining Venezuelan production.

In addition to sanctions on Iranian crude and declining Venezuelan production, supply outages from major producing countries increased concerns over a possible supply shortage in the market. Libya’s production fell to nearly 500 MBbl/d from its high of 1.28 MMBbl/d in February following oil port closures, while Canada’s output is down nearly 360 MBbl/d due to outages in oil sands facilities. In addition to outages in Libya and Canada, recent news from Norway increased the bullish sentiment further as hundreds of workers from Equinor (formerly known as Statoil) opted for a labor strike, asking for higher wages.

As short-term supply outages, sanctions on Iranian crude, and declining Venezuelan production have created the perfect storm in supporting prices, the recent production increases from Saudi Arabia and Russia following the latest OPEC meeting and continuously increasing US production are keeping a lid on further substantial price gains. Saudi Arabia had already ramped up production by 0.5 MMBbl/d in June, while Russia over the weekend announced an increase of production to 11.1 MMBbl/d for the first four days of July. Increasing trade tensions between US-China also pressuring prices as the situation threatens the global economic growth and demand.

Although the production gains from Saudi Arabia and Russia are significant and US production continues to increase, the market is unsure whether these additional barrels would be enough to offset the supply outages and declining production in Venezuela. Another catalyst in the market’s bullish stance is whether there is enough spare capacity to offset a substantial decline in supply levels if sanctions on Iranian crude materialize at higher levels than anticipated with participation of other countries. However, in the scenario that Iranian sanctions materialize only at modest levels and temporary supply outages are short-lived, sentiment can turn bearish and put significant pressure on prices.

With prices for WTI testing and failing at a new high ($75.27/Bbl) and then trading below the previous week’s low, the market may be in the process of developing a tradable resistance zone. Should a “blow off” top event come to fruition, the November 2014 price ($77.02/Bbl) may be the target. If there is a move to the downside, there is not a lot of support between last week’s low ($72.14/Bbl) and $70.56/Bbl. Until the market can understand what the quota easement will likely mean and Iranian sanctions materialize, WTI prices will remain volatile, especially with traders coming back from a holiday week and the market digesting the recent news. Eventually, after the volatility recedes and consolidation commences, the quota easement and continued US growth lead Drillinginfo to believe that the supply and demand for crude may force a retracement of prices to the mid-$60/Bbl level.

Petroleum Stocks Chart

The Week Ahead for Crude Oil, Gas and NGLs Markets – July 9, 2018

The Week Ahead for Crude Oil, Gas and NGLs Markets – July 9, 2018

CRUDE OIL

  • US crude oil inventories increased by 1.2 MMBbl, according to the weekly EIA report. Gasoline inventories decreased by 1.5 MMBbl, and distillates were up slightly at 0.1 MMBbl. Total petroleum inventories showed an increase of 3.3 MMBbl. US production was estimated to be flat on the week. Crude oil imports were up 699 MBbl/d to an average of 9.1 MMBbl/d versus the week prior.
  • WTI began the week’s trade with concerns about whether the stated increase in output from OPEC was going to be able to offset the continuing declines from Libya, Venezuela, Canada, and Iran. The US has stated that it will take a hard stance against allies that do not eliminate by early November imports of Iranian oil. India and South Korea have already announced plans to discontinue Iranian supplies.
  • Later in the week, when word came out that Saudi Arabia had increased production by 0.5 MMBbl/d in June, the trade turned lower. The bearish inventory release didn’t help. Over the weekend, Russia announced an increase of production to 11.1 MMBbl/d for the first four days of July. It is now becoming clear that the increases agreed on in the OPEC meeting have started coming back on the market. It is also evident that Russia and Saudi Arabia are poised to meet the output suggestions from the OPEC meeting in short order.
  • Last week’s consolidation trade, in a narrower range (just under $2.00/Bbl) during lighter holiday trade, brought the market internals back under the extreme over the bought levels of the previous week. The trade went to a lower low during the week, but on lighter volume. Due to the holiday, the CFTC report release has been delayed, but with the price gains through Tuesday, expect additions to the managed money long positions. It should be noted that the spread between the August and September WTI contracts continued to expand, with the spread closing at $2.23/Bbl on Friday. The market is indicating that the gains in output may not affect the prices going into August, but perhaps the news generated over the weekend will cause traders to reassess this assumption. The separation between August and September is a characteristic of a “blow off” top type of event that affects the prompt month but does not bring the other months along with it.
  • With prices for WTI testing and failing at a new high ($75.27/Bbl), and then trading below the previous week’s low, the market may be in the process of developing a tradable resistance zone. Should a “blow off” top event come to fruition, then the November 2014 price ($77.02/Bbl) may be the target. If there is a move to the downside, there is not a lot of support between last week’s low ($72.14/Bbl) and $70.56/Bbl. Expect an increase in volatility with traders coming back from holiday this week and as the market digests the recent news. Eventually, after the volatility recedes and consolidation commences, prices will range from $60-$65/Bbl during the year.

NATURAL GAS

  • Natural gas dry production increased last week, rising 0.27 Bcf/d. Canadian imports increased 0.40 Bcf/d. This now establishes yet another new record high weekly average for production.
  • The US power demand increased 3.67 Bcf/d on the week, while Res/Com decreased by 1.80 Bcf/d, and industrial demand increased by 0.03 Bcf/d. LNG exports declined slightly, falling 0.10 Bcf/d on average for the week, and Mexican exports were nearly flat, gaining 0.02 Bcf/d week on week. These events left the totals for the week showing the market gaining 0.64 Bcf/d in total supply, while total demand was up 1.85 Bcf/d.
  • The storage report last week came in slightly above expectations with an injection of 78 Bcf, immediately sending prices down to support price levels provided from the March and April highs ($2.811 and $2.839, respectively). With the heat in the East and Mid-Con regions this past week, expect a release with a lower injection this week.
  • Prices opened the holiday-shortened week with weakness, breaking below the commonly watched 50-day and 200-day moving averages. Due to the holiday, the CFTC report was delayed and won’t be published until later today. Market internals had volume reduced on a daily average and for the week with the lighter trade. Open interest looks to be down slightly, also a result of the lighter trade.
  • The market received few fundamental data changes as the heat in the East and Mid-Con regions looks to be extending into the middle of the month. There were modifications made to the temperatures forecast in the South (moderating), and some of the longer forecasts have the heat dissipating slightly as we go through July into August. This type of pattern, with the continuing gains in production, seems to be driving declines as the market is evaluating the upcoming demand from the summer heat against the continuing growth in production.
  • The historical seasonal trend for prices during the late summer promotes additional declines, as the market can more accurately analyze the season-ending storage forecasts. Until that picture becomes clearer, expect prices to trade with a price negative bias in the near term. Contributing to the sentiment for decline is the move from the aforementioned highs of March and April to the 20-week moving average. Below that, the lows for August gas in April and May were $2.727-$2.736, respectively. Price rallies will run into sellers at the old support ($2.875) all the way up to the highs of last week.

NGLs

Announcements

  • Sunoco Pipelines is pursuing the ability to use an older, existing 12-inch pipeline to ship ME2 NGLs through Delaware and Chester County after receiving pressure from clients to deliver promised liquids. The pipeline is estimated to have been built around the same time as Mariner East I, with which it runs parallel. Township officials have no control over the proposed change.
  • Mariner East 1 was allowed to resume service on June 14th after sinkholes were discovered near the pipeline. Mariner East 2 construction is currently halted, but still has a target in-service in 3Q’18, while Mariner East 2x plans to be in-service at 2H’19.

Propane Inventories

  • Inventories this past week reported a build of 2.9 MMBbl in last week’s EIA report. Propane stocks now sit at 61.2 MMBbl, approximately 2.8 MMBbl higher than this time last year, and 4.5 MMBbl lower than the 5-year average.