CRUDE OIL

  • US crude oil inventories increased by 0.2 MMBbl, according to the weekly EIA report. Inventories of gasoline and distillates decreased by 3.1 MMBbl and 4.2 MMBbl respectively. The most important number to keep an eye on, total petroleum inventories, decreased by 7.8 MMBbl. While the report is supportive to prices, other news kept a lid on any significant run. US production increased another 21 MBbl/d, and imports were down 745 MBbl/d to an average of 7.4 MMBbl/d versus the previous week.
  • OPEC’s Monthly Oil Market Report put pressure on prices last Tuesday and noted an unusual discrepancy from secondary sources. While secondary sources estimated OPEC production declined 139.5 MBbl/d in February versus January, with a 68.1 MBbl/d decline in Saudi Arabia’s February production, the direct communication indicated Saudi Arabia had actually increased production from the prior month by 263.3 MBbl/d. This could be a signal that Saudi Arabia is not willing to further their production cuts without the benefit of getting higher prices for their crude.
  • Price action stabilized last week after the prior week’s declines. . Prices declined to $47.09 early in the week, but then started to rally and finally closed the week above the 200-day moving average, which was pierced the prior week. While a bullish indicator for brief additional gains early this week, the damage from the declines is expected to persist.
  • According to the latest release from the CFTC (positions as of Mar. 14th, which includes massive declines on Mar. 8th and 9th), the selling was generated from a significant decline in the speculative trade length as, Managed Money reduced length by 34,579 contracts, and additional selling by the Managed Money short position which increased 67,779 contracts. This flip (4.6% of total open interest) suggests longer-term pressure on prices during any serious advance.
  • As noted in our previous Weekly Report, the lower end of a new range needs to be established. Last week’s low of $47.09 is the first target to find support, however, the low end of the new trading range is likely to end up around the late Nov. low (just before the OPEC quota agreement) of $44.82. Short of any turbulence or news from the Middle East, expect rallies to $49.50-$50.00 to be sold as the market settles on its new trading range.
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    NATURAL GAS

  • Natural gas production was flat week-on-week while higher demand in the Northeast incentivized Canadian imports, which increased by 1.0 Bcf/d. US dry production remains below 71 Bcf/d (over 2 Bcf/d lower from last year) and the drilled and uncompleted (DUC’s) inventory of wells has been reduced 42% since levels from last August. Production from DUC’s has only offset the declines from existing wells versus increasing production, which should be alarming news for the bears going into the injections season.
  • Last week’s well below normal temperatures in the Midwest and Northeast sent Res/com levels up 9.8 Bcf/d on average over the week. Power demand also gained 2.6 Bcf/d. LNG exports rose 1.1 Bcf/d as Train 3 was brought fully online and further gains should be expected later this month as Cheniere requested FERC permission to start commissioning Train 4 at Sabine Pass.
  • The storage report last week came in a little below expectations with an injection of 53 Bcf. The coming week’s expectation is a rare triple digit withdrawal around 150 Bcf (an injection was reported last year for the same week). Colder-than-normal temperatures for the rest of March will continue to bring withdrawals higher than average, implying ending inventories on March 31st around 2 Tcf.
  • Price action facilitated additional gains early in the week, testing the January low before selling took prices back below the 200-day average at the close on Friday. The price action created a small trade range between $2.88 and $3.09 per MMBtu as participants seem to be waiting for additional information before signaling the next directional move. According to the CFTC release (positions as of Mar. 14th), speculative shorts were forced to cover and reduced positions by 26,372 contracts (13.9%) as prices broke above the 200 day and tested the Jan lows.
  • Drillinginfo has been calling for a rise in prices to facilitate additional investment in drilling rigs. Expect occasional rallies to be met with selling, but the market seems to also find buyers supporting any declines. With the speculative trade starting to back off additional commitments on declines, the risk for the trade is to the upside with a large contingency of speculative shorts remaining in the market. However, stronger gains will not occur just on short covering; the market will have to embrace the current supply/demand imbalance for the upcoming summer injection season to achieve sustainable longer-term prices. The market is entering a seasonal supportive time as prices historically rise during the Q2.
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    NGLs

    Ethane

  • A drop in the natural gas price caused ethane prices to drop this week. If the downward pressure on natural gas prices continues, it is likely that this trend will continue in the coming weeks.
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    Propane

  • Inventories decreased 0.76 MMBbl in last week’s EIA report, a relatively small draw in comparison to the week prior. Propane stocks now sit at 44.5 MMBbl, roughly 18.0 MMBbl lower than this time last year and the lowest we have seen since 2014. However, propane stocks are still well above the five-year average of 32.7 MMBbl for this time of year prior to 2015 (before the crude price crash).
  • Propane prices started the week off strong due to renewed heating demand caused by a storm in the Northeast, but fell the rest of the week after the EIA reported a weak withdrawal.
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    Butanes/Natural Gasoline

  • Natural gasoline prices made slight gains week-over-week, due to upward pressure from crude oil prices. Normal butane and isobutene prices dropped slightly because the demand for winter gasoline blending has subsided.
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