DI Blog

Insights across the energy value chain

CRUDE OIL

  • US crude oil inventories increased by 5.8 MMBbl, according to the weekly EIA report. Gasoline inventories decreased by 3.2 MMBbl, and distillates decreased 0.4 MMBbl. Total petroleum inventories showed a sizeable increase of 6.0 MMBbl. US production (according to the EIA estimate) was up 100 MBbl/d on the week, hitting 11.0 MMBbl/d for a new record. Crude oil imports were up 1.64 MMBbl/d to an average of 9.1 MMBbl/d versus the week prior.
  • The WTI market ended the bullish bias from the start last week as two news reports hit the market early in the week: (1) the Trump administration’s consideration of tapping into the US strategic petroleum reserve if supply outages worsen and (2) the potential for US waivers of Iranian crude sanctions. Following this news was the IMF showing a slowdown in economic growth and Saudi Arabia offering extra crude above contractual supplies to the Asian market, signaling its ability to raise production even further. These events forced the bulls to adjust earlier expectations, namely assertions that the increase in output from OPEC would not be sufficient to offset the longer-term declines from Venezuela, as well as the impacts of the restoration of a ban on Iranian imports by the US and our allies.
  • The confluence of the offsetting news and its potential impact on expectations created weakness early in the week and sent prices downward, testing support levels not seen since the end of June (just above $67.00). Avoiding what could have been a larger overcorrection, prices found support (at a commonly watched support level, the 20-week average) and spent the latter portion of the week gaining back some of the losses. The rebound kept oil out of over-sold territory, and prices closed the week just below the previous week’s close, with the credit of the resurgence being on declining volume.
  • With the declines of early last week and the previous week’s decline, it was not surprising to find the latest CFTC report (dated July 17) showing the managed-money long positions declining 42,175 contracts. While still extended in regards to total open interest, this group will continue liquidations if prices break below the support levels established last week.
  • With prices for WTI reversing off the previous highs and now starting to test support zones, the high end of the current trade range has likely been established at the recent high ($75.27). Last week’s trade followed expectations (mentioned in the last Weekly Report), testing the late June lows around $67.00. With the news continuing to wreak havoc on traders, price action will continue to be volatile, similar to last week. Should prices garner enough bearish strength, expect potential levels around $62.00 (early April lows) to come into play. Eventually, after the volatility recedes and consolidation commences, prices will range between $58 and $65 during the year. Factoring in the current events and the price action with the continued growth in US production, prices should settle in a zone between $60 and $65.

NATURAL GAS

  • Natural gas dry production decreased again this week, falling 0.48 Bcf/d, with averages ranging between 80 Bcf/d and 81 Bcf/d. Canadian imports decreased 0.05 Bcf/d. The production declines were primarily in the Texas, mid-con and Southeast regions, while gains were experienced in the Northeast and Rocky Mountain regions.
  • The US power demand increased 2.28 Bcf/d on the week, while res/com decreased by 0.27 Bcf/d and industrial demand decreased by 0.05 Bcf/d. LNG exports increased slightly, rising 0.16 Bcf/d on average, and Mexican exports lost 0.15 Bcf/d on the week. These events left the totals for the week showing the market losing 0.74 Bcf/d in total supply, while total demand was up 2.17 Bcf/d.
  • The storage report last week came in below expectations, with an injection of 46 Bcf. The initial response was bullish, and the price run of $.04 held throughout the day. With the supply and demand imbalance showing additional draws last week, expect the potential for a lower injection this week when the report is announced.
  • Prices softened last week, testing near-term support around $2.70, only to find a bid after the storage report release. The CFTC report (dated July 17) gave some insight as to the selling, showing the managed-money long positions liquidating 13,464 contracts and the managed-money short positions increasing 27,695 contracts. These position modifications occurred on a slightly lower weekly volume, with open interest staying nearly flat.
  • The fundamental expectations for demand in the coming two weeks are weak. Temperatures are expected to be below normal in the East and mid-con regions, with above normal temperatures in the West and the Southern Plains. This decline in demand may be offset if the production declines experienced last week continue.
  • While prices remain in the historical seasonal negative bias, the recent monthly history for prices after the 20th of the month is to show some strength, especially during the expiration period. Prices may challenge last week’s lows and extend down to the $2.675 area, but any rallies will likely find sellers abundant over $2.80, up to the commonly watched 200-day average of $2.859.

NGLs

Announcements

  • Mariner East 2 was issued its 65th violation for spilling 3,500 gallons of drilling fluid into a wetland in Jackson Township in Cambira County. Energy Transfer will have to submit a report describing how they will clean the spill before resuming drilling at the site.
  • A group of environmentalists, the Philly Antis Commission, has hired Quest Consultants to perform a “risk assessment“ study of Mariner East 2, as citizens are unhappy with state leader’s lack of consideration of shutting down the project – even after the construction has caused sinkholes, spills, and risk to the public. Such a project could create more awareness of the threats of the pipeline.
  • Global Infrastructure Partners has officially completed the acquisition of Devon Energy’s interests in Enlink for $3.125 billion. The divesture includes a 64% stake in Enlink Midstream LLC and a 23% stake in Enlink Midstream Partners LP.

Propane Inventories

  • In last week’s EIA report, inventories reported a build of 1.7 MMBbl. Propane stocks now sit at 65.3 MMBbl, approximately 3.0 MMBbl higher than at this time last year and 4.8 MMBbl lower than the five-year average.

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