- US crude oil inventories decreased significantly, falling 7.3 MMBbl, according to the weekly EIA report. Gasoline and distillates inventories increased 1.7 MMBbl and 3.8 MMBbl, respectively. Total petroleum inventories showed a sizeable decrease of 8.3 MMBbl. US crude oil production remained unchanged from the prior week. Crude oil imports were down 943 MBbl/d to an average of 7.2 MMBbl/d versus the week prior.
- Prices re-tested the previous week’s lows by declining to $50.08/Bbl on Thursday after the OPEC meeting did not produce a formal decision on supply cuts. Those concerns were mitigated on Friday when the OPEC and non-OPEC member countries agreed to cut 1.2 MMBbl/d. The news had the crude markets rallying with WTI trading briefly up to $54.22/Bbl.
- WTI started the week stronger on news that the Alberta Premier, Rachel Notley, ordered oil companies to reduce supply levels by nearly 9% next year. This surprise was followed with optimism after the G20 meeting. President Trump and Chinese President Xi Jinping agreed to halt new tariffs (effective Jan 1st) for 90 days while the trade talks continue.
- The EIA’s data release showed the first decline in crude supplies in the past 11 weeks. It will likely provide enough support at the low end of the recent range ($49.41/Bbl) to hold off any further lower probes. The next directional move should be a continuation of the counter-trend run that started Friday with the production cuts announcement.
- The CFTC report showed little change in the positions of traders. Managed money long positions liquidated 13,137 contracts while short positions declined by 8,631 contracts, likely on profit taking as the market became extremely oversold.
- The positive gains at the end of the week relieved some of the oversold conditions within the trade. Expect the market to consolidate the past 5 weeks’ bearish collapse in prices and develop a new range for prices for the remainder of 2018. The high side of the range has $57.44/Bbl, providing significant selling, while the lows from October 2017 ($49.18/Bbl) will find buying near-term as the market digests the recent fundamental adjustment to expectations.
- Drillinginfo continues to believe the long-term range for prices will occur between $60 and $65/Bbl after the market fully digests the global supply and demand profile. Getting to that fundamental understanding will take an extended period of time, during which the near-term range, between $51 and $61/Bbl, will hold the trade.
- Natural gas dry production decreased last week, falling 0.22 Bcf/d. Canadian imports increased 0.28 Bcf/d.
- With temperatures falling last week, Res/Com demand gained 3.89 Bcf/d. Power and Industrial demand increased 0.58 Bcf/d and 0.35 Bcf/d, respectively. LNG exports increased 0.03 Bcf/d, while Mexican exports decreased 0.13 Bcf/d week-over-week. For the week, supply gained 0.06 Bcf/d while demand gained 4.84 Bcf/d.
- The storage report last week came in with a draw of 63 Bcf. The release continued to support the gains that had already been made early in the trade on Friday.
- The CFTC report dated Nov 27th was released, showing little adjustment by the trading participants. Managed Money Spreading traders continued liquidation of positions, closing 19,173 contracts. The Managed Money long and short positions were reduced 5,851 and 6,451 contracts, respectively.
- The recent range trading between $4.15 and $4.80 has given prices a chance to consolidate before the next move. Last week provided a higher weekly low and brought prices back within 2 standard deviations of the 20-week average. The range trade also softened the extreme overbought momentum status in prices. The market internals confirmed the range trade environment with volume lower and open interest showing only a slight increase until Friday, which indicated growing open interest. Prices will need open interest gains to confirm the bullish bias has the support to break out above the range. Prices also provided insight to a possible extension of the rally with the summer ’19 strip gaining nearly $0.11 while the 1Q19 months were basically flat on the week. In weeks prior, the remaining winter price gains have far outpaced the summer gains.
- Weather forecasts will continue to have the greatest influence on volatility and direction of price movements. Warming forecasts will send prices to initial support at last week’s low down to major support at $4.10. Current forecasts have temperature moderation short term, while weather models are inconclusive for the long term. Should the forecasts revert back to below normal temperatures, the November highs will be targeted.
- An administrative judge will rule on an emergency petition to shut down the construction on the Mariner East pipeline on December 11th. Residents have asked the Pennsylvania Public Utilities Commission for the shutdown because they claim that Energy Transfer’s emergency management plan is not adequate for the safety of the community. This would cause lower netbacks in the Northeast, as the region has already been experiencing increased NGL production and tightness in the transportation market.
- Week over week, normal butane and isobutane are up 13.2% and 10.8%, respectively, to 88 and 95 cpg. Ethane, propane and natural gasoline remain relatively flat at 32, 71 and 107 cpg, respectively.
- The spread between Mont Belvieu and Conway propane prices tightened to $2.75, a difference not seen since January of 2018.
- The EIA reported a draw of 1.3 MMBbl in this past week’s inventories. Propane stocks now sit at 79.8 MMBbl, approximately 6.7 higher than with this time last year and 3.8 MMBbl lower than the 5-year average.
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