DI Blog

Insights across the energy value chain

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.
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