DI Blog

Insights across the energy value chain

CRUDE OIL

  • US crude oil inventories showed no changes for the week, according to the weekly EIA report. Both the gasoline and distillate inventories showed significant increases for the week, gaining 6.9 MMBbl and 9.5 MMBbl, respectively. With these significant gains, total petroleum inventories showed an increase of 14.6 MMBbl. US crude oil production was flat on the week. Crude oil imports were down 264 MBbl/d to an average of 7.4 MMBbl/d versus the week prior.
  • Prices started the week with a positive bias as the trade was supported by the expectation that trade talks between the US and China would ease concerns around China’s demand for crude. This strength was further buoyed by the Chinese central bank’s announcement of cutting cash reserves by 1%, signaling an intention to keep the economy on a healthy growth trajectory.
  • Traders have been taking into consideration the additional production cuts of 1.2 MMBbl/d by OPEC and other quota countries, which started to take effect this month. Compliance by Russia will be closely watched as they have announced plans to meet the reductions over a period of time rather than as of the first of the year.
  • Prices continued higher during the week as the Federal Reserve indicated intentions to keep further rate increases dependent on data from the US economy in 2019. The surprise growth in the jobs/income report on Friday further confirmed a strong US economy.
  • WTI settled the week up $2.63/Bbl on the counter trend rally. The gains relieved much of the extremely oversold status and provided strength in the market internals as volume and open interest started to rise with the gains in price. The CFTC report is still not available due to the government shutdown, therefore any movement in the trade positions regarding the total open interest gains is unknown.
  • The rally in WTI took prices over the first area of resistance at $47/Bbl and now looks to be challenging the $50/Bbl level. If the WTI rally breaks that level, prices will challenge the highs from three weeks ago at $51.87/Bbl. The low end of this new range seems to be established at the June 2017 low of $42/Bbl.
  • Drillinginfo believes the near-term range of prices will hold within the $40/Bbl to $50/Bbl range. In the long term, Drillinginfo believes prices will trade between $55/Bbl and $60/Bbl.

NATURAL GAS

  • Natural gas dry production declined 1.68 Bcf/d, with the Mountain and South Central regions providing the majority of the declines. Canadian imports increased 0.29 Bcf/d.
  • Colder temperatures had Res/Com demand adding 2.83 Bcf/d, while Power demand jumped 2.71 Bcf/d and Industrial demand increased 0.59 Bcf/d. LNG exports declined 0.17 Bcf/d on the week, while Mexican exports were flat. Total supply dropped 1.4 Bcf/d and total demand increased 6.36 Bcf/d.
  • The storage report last week came in with a withdrawal of 20 Bcf, well below historical averages for the same week.
  • Prices opened the week on New Year’s Eve with large declines, creating a gap in prices between $3.14 and $3.278 as forecasts ushered in some warming for early to mid-January. With the CFTC not reporting the positions of trade sectors (due to the government shutdown), it is impossible to know what shifts have occurred within traders’ positions.
  • Natural gas prices are entering a period for potentially high volatility as the market is struggling between two elements of thought. One element remains concerned about ending storage inventories in March should the forecasts modify colder in late January and into February. The other element is convinced winter is over and that there is no concern about inventories with the production growth.
  • On Dec. 31, 2018, prices closed out the year $.013 less than where they were on the last day of the year in 2017. Last year the trade maintained a similar conclusion that winter was over, just before prices ran up over $3.60 during January. Price volatility will continue to be driven by weather forecasts.
  • As trade continues through January and into February, the two elements directing price bias will settle. Expect the low end of the range at $2.80 to find buyers and the gap created last week at $3.14 to $3.27 to find selling.

NGLs

  • Energy Transfer announced that Mariner East 2 commenced service on Dec. 29 amid a criminal investigation. The company also finished the project by utilizing several different old pipelines built in the 1930s to move LPGs to Marcus Hook.
  • Ethane and propane prices are flat week over week at 29 cpg and 63.25 cpg, respectively. Normal butane and natural gasoline are up 2% and 11%, respectively, to 77.6 cpg and 98.75 cpg. Iso butane is down 3% week over week to 78.6 cpg.
  • US propane stocks decreased about 1.6 MMBbl in this past week’s inventories. Stocks now sit at 70.7 MMBbl, about 2 MMBbl higher than last year.
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