DI Blog

Insights across the energy value chain

CRUDE OIL

  • US crude oil inventories decreased 8.6 MMBbl last week, according to the weekly EIA report. Gasoline inventories decreased 1.9 MMBbl, and distillate inventories decreased 0.3 MMBbl. Total petroleum inventories showed a substantive decrease of 17.9 MMBbl. US crude oil production increased 100 MBbl/d last week (per EIA). Crude oil imports were down 1.6 MMBbl/d to an average of 5.9 MMBbl/d versus the week prior.
  • WTI prices continue to range trade based on daily news. Last week, early losses were generated by a tweet from President Trump complaining about gains in oil prices and requesting that OPEC “take it easy” with the price management programs occurring. Then, news from Saudi energy minister Khalid Al-Falih said he is thinking about an extension of the supply cuts after June. He went on to say he is ready to ease the production cuts should the fundamentals tighten too much.
  • The bullish bias to WTI has been generated by the fundamental aspect of the trade based on Venezuelan production declines, supply cuts by OPEC and non-OPEC entities, and Libyan outages. Last week, the bulls got an additional jolt from the surprising inventory report, which brought a solid bid to the market. However, this bullish bias has been limited by the ongoing tariff negotiations between the US and China, which were not resolved by the imposed deadline of March 1. This was problematic for holding the gains of the week on Friday as prices declined from the recent highs.
  • The CFTC report is now providing useful information, as the latest report contains the position of the traders through February 19. As you will notice in the charts below, the managed money short sector eliminated positions quickly as the bullish momentum took over in January and continued into February.

  • The “buying back” of short contracts provided a significant amount of the lifting in prices, as the short covering reduced positions by more than 60,000 contracts. Looking at the managed money long sector, the gain in positions has been muted by comparison, with a gain of only 20,000 contracts from the lows.

  • These charts provide a clearer picture of the bullish bias the market has maintained for most of 2019, but they also suggest that the gains are not the precursor to a bull market as in 2018. A significant reason for the 2018 price run was the speculative long traders that continued to push prices higher. That group seems noncommittal about the current run, and this hesitation is likely due to uncertainties around global economic growth and tariff negotiations.
  • Last week took prices to test the resistance level from last November at $57.96. As mentioned previously, should prices have a daily close above that level, expect $60.00 in the near future. Should prices extend the current declines, then the first target in retracement will be around the 20-week moving average at $54.81. A breakdown through this area will lead prices to the commonly traded 50-day moving average at $51.84.

NATURAL GAS

  • Natural gas dry production decreased 0.26 Bcf/d. Canadian imports also declined, falling 0.20 Bcf/d.
  • Res/Com demand dropped 2.69 Bcf/d, while Power and Industrial demand fell 1.35 Bcf/d and 0.25 Bcf/d, respectively. LNG exports gained 0.22 Bcf/d on the week, and Mexican exports increased 0.03 Bcf/d. Total supply dropped 0.46 Bcf/d, and total demand fell 4.18 Bcf/d for the week.
  • The storage report last week came in with a withdrawal of 166 Bcf, well above both the historical averages and last year’s withdrawals. Total inventories are now 154 Bcf below last year and 424 Bcf below the five-year average. Expect these variances to increase in the coming weeks with the weather forecasts indicating significant gains in demand.
  • Prices opened the week with a higher gap, and the gap was not closed during the week. Prices showed strength during the week, largely based on weather forecasts for early March. Trade now has a defined potential double-bottom formation, with the lows established on February 7 ($2.549) then a retest and failure on February 15 ($2.543). Both lows represent tests of the lows that have held price declines since 2016.
  • The CFTC report was updated, showing positions as of February 19 and confirming that the late January declines were the result of the liquidation of winter speculative long positions. Notice, in the chart below, the liquidation of the managed money long position during January and early February as prices declined through several support levels.

  • What is more relevant, and the primary reason for the recent range trade, is the lack of additional selling by the managed money short trading sector. This sector’s gain in position is anemic, further evidence of the lack of commitment for substantially lower prices.
  • The strength in prices last week confirmed that the gas market continues to trade in relation to weather forecast changes. With the forecast including additional demand into March, it is likely that the February lows will hold the declines during March. The market now must focus on ending inventories breaking below 1.2 Tcf at the end of March. If this scenario plays out over the next three weeks, expect declines to be met with buying during the summer months.
  • The trade may extend rallies to the March expiration highs at $2.908. Beyond that resistance are areas between $2.93 and $2.98 that will find significant selling in the coming week. The downside potential for gas remains the three-year support area around $2.53, which has found buyers on several different occasions.

NGLs

  • Prices were mainly down last week. Ethane was down $0.01, to $0.29, as were propane (down $0.02, to $0.68), normal butane (down $0.07, to $0.81) and isobutane (down $0.07, to $0.85). Natural gasoline was the only price increase week over week, gaining $0.01 to reach $1.21.
  • US propane stocks decreased ~1.2 MMBbl the week ending February 22. Stocks now sit at 53.4 MMBbl, roughly 10.7 MMBbl and 4.1 MMBbl higher than the same week for February 2018 and February 2017, respectively.

SHIPPING

  • US waterborne imports of crude oil appear to have fallen again last week on lower imports to PADD I and PADD III. Crude imports from Saudi Arabia appeared to increase over the past week with cargo coming into PADD III. Last week’s EIA report showed that US imports of Saudi crude fell to their lowest weekly level since 2010, when that data was first reported. The chart below shows waterborne imports of crude oil to the US.

  • Imports of Venezuelan crude oil dropped significantly in the month of February as a result of sanctions. Venezuelan crude tends to be in heavier grades, and while this crude has not been completely replaced, imports of heavy crudes from other countries have risen to fill the gap.

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