DI Blog

Insights across the energy value chain

CRUDE OIL

  • US crude oil inventories showed an increase of 1.3 MMBbl last week, according to the weekly EIA report. Gasoline inventories increased 0.5 MMBbl, and distillate inventories decreased 2.3 MMBbl. Total petroleum inventories declined 4.3 MMBbl. US crude oil production was unchanged last week (per EIA). Crude oil imports were up 63 MBbl/d to an average of 7.1 MMBbl/d versus the week prior.
  • Trade last week opened near its high but could not follow through on the previous week’s gains. Bullish news continued this past week with the OPEC-led supply cuts. Saudi Arabia has committed to reducing supply levels in February to bring balance to the market. Venezuelan sanctions also provided a positive influence in the market.
  • The bearish news from last week was led by the ongoing tariff dispute between China and the US. The market discovered that no meeting will occur between President Trump and Chinese President Xi Jinping by the March 2 deadline, causing concern about a deal being reached.
  • The market is starting to get a better picture of trade positions as the CFTC report is now complete through January 8. The charts below provide insight into the trade in early January as the market was starting to rebound from the December lows. The long positions were destroyed during the declines, sending positions down to levels not seen since 2016.

  • On the other hand, interest by the Managed Money short sector rallied to positions not seen since October 2017, before the great 2018 bull run commenced.

  • WTI settled the week down $2.54/Bbl. The market internals had volume gaining on the previous week, but open interest continues to decline as participants are seeking direction. Should prices find support from the ongoing tariff discussions, they may rally to the mid-November high of $57.96/Bbl. Should the tariff issues not get resolved, fears about global demand declines and a supply long market will re-emerge, taking prices down to $50.00/Bbl initially, and perhaps further.

NATURAL GAS

  • Natural gas dry production decreased 0.37 Bcf/d. Canadian imports declined dramatically, falling 2.52 Bcf/d on cold temperatures in Canada, as well as temperatures rebounding in the US, causing declining demand in the Northeast and Midwest.
  • Res/Com demand dropped 19.23 Bcf/d, while Power and Industrial demand fell 3.94 Bcf/d and 2.08 Bcf/d, respectively. LNG exports fell 0.88 Bcf/d on the week as weather in the Gulf of Mexico resulted in cargoes not being able to reach port. Mexican exports declined 0.16 Bcf/d. Totals for the week show supply declining 2.89 Bcf/d and demand falling 24.97 Bcf/d.
  • The storage report last week came in with a withdrawal of 237 Bcf, slightly below market expectations, which were ~247 Bcf.
  • For a fourth consecutive week, prices opened Sunday with a lower gap. Prices remained weak, testing the multiyear lows and an area that retains five quarterly lows since the summer of 2016. This area, between $2.522/MMBtu and $2.568/MMBtu, has held all declines since the June 2016 breakout. The declines last week left the market oversold, and the weekly momentum indicator has declined to levels not seen since the multiyear lows of February 2016.
  • The declines last week were primarily from the remaining winter bulls leaving their positions. While the CFTC report was released Tuesday and Friday of last week, the Friday release is dated for positions through January 8. The chart below shows that the speculative long trade started to reduce positions at the highs from November and December and has accelerated those liquidations on rallies in price.

  • However, as long positions fell, short positions weren’t increasing. This is largely due to the struggle that was occurring in the market through mid-January, as prices were jumping up and down based on weather forecasts. This type of environment is not typical for bears to establish new positions.
  • Last week the market internals changed dramatically. Open interest declined by more than 76,000 contracts, with more than 65,000 of those in the March contract. Volume exploded well above the recent average daily levels.
  • The weak close last week suggests that the declines have further to extend, but the oversold condition and the potential buying surrounding the three-year support zone may limit the declines. Changing forecasts predicting colder weather may bring brief rallies; however, these rallies will be limited with the market being more comfortable with storage inventories.

NGLs

  • Prices were down across the board last week: ethane, propane, normal butane, and isobutane each fell 5%, while natural gasoline fell 1%.
  • US propane stocks decreased about 2.7 MMBbl the week ending February 1. Stocks now sit at 57.5 MMBbl, about 8.6 MMBbl and 1.8 MMBbl higher than in the first week of February 2018 and February 2017, respectively.

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