- US crude oil inventories showed no gain for the week, according to the weekly EIA report. Gasoline inventories increased 3.0 MMBbl, while distillates inventories remained the same. Total petroleum inventories showed a decrease of 2.0 MMBbl. US crude oil production increased 100 MBbl/d last week. Crude oil imports were up 233 MBbl/d to an average of 7.7 MMBbl/d versus the week prior.
- The holiday-shortened week provided few new headlines as the market continues to digest the positive and negative elements of the market. The Iranian reductions, Venezuelan production declines, quota reductions from OPEC and non-OPEC suppliers, government reduction of crude production by Canada, and short-term reductions from Libya have provided a positive spin for the market during most of 2018.
- Negative elements driving prices down include the waivers provided to some countries against Iranian sanctions, tariff disputes between the US and China, lack of clarity regarding adherence to the quota reductions, the fears of declining global demand as well as a declining US economy, and the continued growth of US producers.
- Prices in WTI had a remarkable semblance to the action in equities last week. The S&P suffered one of its worst declines on Monday, while WTI lost $3.00, setting the low for the week at $42.36. This action was countered by both markets on Wednesday, with the S&P gaining over 100 points while WTI gained over $4.00 and set the week’s high at $47.00. While the equities continued to show strength later in the week, the WTI prices started to retrace some of the week’s gains.
- While the brief rally in crude mitigated the oversold bias in the near term, the long-term bias continues to be oversold and will need additional gains, or a period of narrow range trade, to relieve the extreme levels.
- WTI has needed a counter trend rally for the past couple of weeks, and last week it received one. It is likely not to be the last counter bounce to occur. Continued declines in the coming week will leave prices two standard deviations below the 20-week average and may test the $42 area again. Rebounds off the lows will likely test the $50 area and potentially move prices to the high of two weeks ago at $51.87.
- Drillinginfo continues to believe the long-term range for prices will occur between $60 and $65 after the market fully digests the global supply and demand profile for 2019. Getting to that fundamental understanding will take an extended period of time. The near-term range must be adjusted to reflect the breakdown of recent weeks, which has taken the range to between $42 and $57.
- Natural gas dry production increased 0.74 Bcf/d. Canadian imports increased 0.21 Bcf/d.
- Seasonal temperatures throughout the nation caused Res/Com demand to increase, adding 2.59 Bcf/d. However, power demand dropped 2.62 Bcf/d, offsetting the demand gain in Res/Com. Industrial demand increased marginally by 0.05 Bcf/d. LNG exports increased 0.84 Bcf/d on the week, while Mexican exports decreased 0.46 Bcf/d. Totals for the week show the market gaining 0.94 Bcf/d in supply while demand increased 0.45 Bcf/d.
- The storage report last week came in with a draw of 48 Bcf, well below historical averages for the same week. Prices continued the declines that had started before the release.
- Prices followed the lead from the weather forecast changes that had temperatures moderating into early January. The CFTC report was not released due to the government shutdown, eliminating the identifying sources of the additional declines.
- The extension downward in prices took them below the breakout area of late last fall. This should be considered a bearish event, and we would expect additional declines this week. The issue concerning the recent price move is the weak internals (low volume and open interest declines) as prices continued their declines. Just as bull runs based on short covering are subject to an abrupt end, the same is true of declines with weak internals, as the liquidation will come to an end.
- The market seems to be saying winter is finished, but late January into early March is the key period. Continue to expect volatility from the light trade and weather forecasts.
- Last week’s Mont Belvieu ethane, normal butane, and isobutane prices were up 1.2%, 0.8%, and 0.6%, respectively, from the week prior. Propane and natural gasoline prices saw declines week-over-week, falling 1.9% and 7.1%, respectively.
- US propane stocks decreased about 1 MMBbl in this past week’s inventories. Stocks now sit at 72.2 MMBbl, about 3.6 MMBbl higher than last year.
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