DI Blog

Insights across the energy value chain

CRUDE OIL

  • US crude oil inventories decreased 1.4 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 1.2 MMBbl and 0.4 MMBbl, respectively. The total petroleum inventories showed an increase of 2.5 MMBbl. US crude oil production declined 100 MBbl/d last week, per EIA. Crude oil imports were down 0.60 MMBbl/d to an average of 6.0 MMBbl/d versus the week prior.
  • WTI traded in a “quiet” range last week, digesting the news that has prevailed in the market for the past couple of weeks. The supply reductions from OPEC and non-OPEC participants, declines in production from Venezuela and Iran, and unrest in Libya have driven the recent price gains. However, the Russian finance minister, Anton Siluanov, was quoted as saying that OPEC and Russia could decide to abandon the deal, boost production, and fight for market share with the US, bringing a pause to the speculative upward drive. This news followed news at the beginning of the week that the OPEC-led supply cuts may not be renewed for the second half of the year.
  • The bullish speculative elements that have entered the market of late need to overcome the negative elements that still reside in the minds of most traders, limiting the runs. The primary driver of concern is the potential for a slowdown in global economic growth, as fears rekindled with news that the US government may impose tariffs on European goods and the IMF lowered its global economic growth forecast. Although the gloomy economic outlook keeps pressure on prices, futures spiked this morning with reports stating that the US government could announce soon that all purchasers of Iranian oil will need to stop importing oil from the country or be subject to US sanctions.
  • The CFTC report (positions as of April 16) confirmed the pause in the speculative elements, adding to positions as the Managed Money long component increased speculative length by only 1,029 contracts, while the short component added just 1,039 contracts. Producer hedging backed off from recent levels, as the report showed a slight decline in positions.
  • Last week’s close ($64.00) continued the string of higher weekly closes. Though prices had a lower low than they did the week prior, the range for the week ($1.62) was very near the previous week’s ($1.66), confirming a consolidation of previous gains. Market internals continue the bullish bias, with the momentum indicators entering overbought levels. The volume was down week on week with the holiday-shortened week, but open interest did gain during the week.
  • Prices pursued a consolidation phase during the holiday-shortened week, with a slight expansion below the previous week’s low, only to recover and close higher than in the previous week. Consolidation is likely to continue until the next piece of headline risk—likely any changes in the Iranian sanction waivers—provides direction for the summer months. Expectations of enforcement of the sanctions and reduction of the waivers will likely send prices between $65 and $68 (an area of consolidation from last fall during the price collapse), though some of those gains are already in the current price. Continuation or extension of the waivers is likely to bring an adjustment of the speculative expectations, similar to last November, taking prices lower, testing the breakout area around $60.

NATURAL GAS

  • Natural gas dry production showed an increase of 0.59 Bcf/d, with most of the gains coming from the South Central (+0.55 Bcf/d) region. Canadian imports showed a decrease of 0.08 Bcf/d.
  • Power demand fell 1.26 Bcf/d on the week, while residential/commercial and industrial demand showed gains of 0.23 Bcf/d and 0.35 Bcf/d, respectively. LNG exports shot up on the week, gaining 1.37 Bcf/d, with maintenance subsiding at Sabine Pass. Mexican exports fell by 0.46 Bcf/d. Totals for the week show the market gaining 0.51 Bcf/d in supply while total demand rose 0.25 Bcf/d.
  • The storage report last week showed an injection of 92 Bcf. Total inventories are now 57 Bcf below last year and 414 Bcf below the five-year average.
  • The CFTC report (as of April 16) showed the Managed Money long sector reducing positions by 3,562 contracts, while the short position substantially increased, gaining 35,538 contracts. The chart below pictures the gains in the Managed Money short positions and has been largely responsible for the gains in total open interest.

  • Since the middle of March, total open interest has gained nearly 120,000 contracts. However, of those gains, 42,000 contracts were speculative short positions. The Managed Money short position remains below the long position, but the two are converging. With the support level breakdown at the end of the week, expect additional gains in the short position.
  • Market internals maintain a bearish bias from the previous week. Prices nearly doubled the recent ranges, with a $0.175 spread between the highs and lows for the week. Regardless of the holiday-shortened week, volume was lower. However, volume showed strong daily levels compared to previous weeks, which is a cornerstone for additional declines. Collectively, with these market internals, expect to see lower prices in the coming week.
  • Last week printed the lowest price and the lowest weekly close since June ’16. The area around $2.522 had rebuffed several attempts of prices to break below in some very bearish fundamental situations over the past three years. This market seems destined to print lower levels but will run into fundamental seasonal support in the coming weeks as the trade starts balancing injections versus production levels. The long-term (three-year) support at $2.522 will now act as the first level of resistance in any rallies, followed by last week’s high at $2.653 followed by $2.729. Further movements below last week’s close will not find major support until prices fall to some key 2016 levels around $2.29.

NATURAL GAS LIQUIDS

  • Sunoco provided notice of intent to restart Mariner East 1 on Friday. The pipeline has been down since January 20, when a sinkhole exposed a portion of the pipeline. Mariner East pipelines transport ethane, propane, and butane to the Marcus Hook terminal, from which they are transported mainly overseas. Mariner East 1 is expected to be back online as early as today.
  • Prices were mainly down last week. Ethane fell $0.004 to $0.227, propane was down $0.034 to $0.646, normal butane was down $0.020 to $0.747, and isobutane was down $0.023 to $0.748. Natural gasoline was the only product to increase week over week, gaining $0.008 to $1.309.
  • US propane stocks increased ~2.4 MMBbl the week ending April 12. Stocks now sit at 56.7 MMBbl, roughly 20.9 MMBbl and 17.1 MMBbl higher than the same week for April 2018 and April 2017, respectively.

SHIPPING

  • Waterborne crude imports to the US rebounded last week after the prior week’s low level of activity. The EIA reported on Wednesday that the week ending April 12 saw the lowest level of imports to PADD 3 since reporting began for that area in 1990. For the week of April 19, imports increased across all regions. PADD 3 rebounded to more than 1.8 MMBbl/d, and PADD 1 and PADD 5 both imported more than 600 MBbl/d.

  • Imports from Iraq, which had dropped to zero for PADD 3 the prior week, bounced back to more than 200 MBbl/d. The offshore LOOP terminal, which has seen diminished activity for imports, also received a cargo from Colombia.
  • Phillips 66 Sweeney refinery received a cargo of Clair crude oil from the UK for the second consecutive month. The refinery was built effectively to process Venezuelan Merey 16 crude oil, but as shown in the chart below, its waterborne imports have shifted over the years.

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