- US crude oil inventories decreased by 5.3 MMBbl, according to the weekly EIA report. Both the gasoline and distillates increased, with gasoline rising 1.3MMBbl and distillates increasing 8.6 MMBbl. Total petroleum inventories showed a significant increase of 10.1 MMBbl. US crude oil production was estimated to be down 100 MBbl/d. Crude oil imports were down 123 MBbl/d to an average of 7.6 MMBbl/d versus the week prior.
- Last week had a similar price profile to the previous week, with early strength generated by news that the US and China tariff discussions were showing progression, continued political unrest in southern Iraq, Libyan violence, continued declines in Venezuelan production, the uncertainty of Iran sanctions, and the impact of Hurricane Florence. The confluence of this news and the declining dollar early in the week took WTI prices up to the highs for the week at $71.26/Bbl before news on Thursday that the Trump administration was going to follow through and impose $200 billion in tariffs on Chinese imports. This news, along with the large inventory build the previous day, brought an immediate reversal in the gains.
- The WTI trade still carries a bullish bias. The IEA raised demand projections for 2018 and 2019, but the potential impact from tariff discussions clearly casts a shadow over price advances. US production continues to remain high and drilling continues ahead of takeaway capacity from the Permian.
- Expectations around the tariff issues have had an impact on the speculative trade. The declines from the week prior on bearish news regarding the China and US trade issues brought about a 23,606 contract decline in the Managed Money long positions in the latest CFTC report. The report also showed a gain of Managed Money short positions increasing 5,567 contracts.
- The failure of prices to stay above $71/Bbl suggests that this level will provide definable resistance to any further runs. Price declines will meet buying associated with the 200-day moving average, which is currently $65.65/Bbl. The market will continue to feed off additional news for an extension beyond $71/Bbl up to the June highs at $75/Bbl. If news around tariffs continues to pressure prices, a breakdown below the key average will likely take prices down to the April lows around $62/Bbl. When all the current headline news plays out and some of the uncertainty fades, prices are likely to consolidate into a lower range. With the quota easement, continued US production growth, and the fears of weaker demand growth, Drillinginfo believes the long-term range will occur between $58/Bbl-$65/Bbl.
- Natural gas dry production increased last week, rising 0.38 Bcf/d to a new weekly average of 83.35 Bcf/d. Expect production to continue to grow later into the month as the Rover Pipeline project finishes its last phase and brings additional gas to the market. Canadian Imports fell 0.35 Bcf/d.
- US power demand fell 3.37 Bcf/d on the week, while Res/Com gained 1.97 Bcf/d and industrial demand increased 0.10 Bcf/d. LNG exports increased 0.13 Bcf/d on average for the week and Mexican Exports were down slightly, falling 0.10 Bcf/d. These events left the totals for the week showing the market gaining 0.02 Bcf/d in total supply while total demand lost 1.42 Bcf/d.
- The storage report last week came in with an injection of 69 Bcf. The data release brought some additional weakness, taking prices down into the weekly close. This week’s injection should be stronger based upon the supply demand balance from last week.
- According to the CFTC report (dated Sept. 11), the Managed Money long position (speculators) reduced the position by 8,463 contracts while the Managed Money short positions increased positions by 34,579 contracts. With the declines toward the end of the week, expect to see further increases in the Managed Money short sector. This directional play by the speculative crowd strongly indicates that the expectation of speculative traders is a test of the July lows at $2.704.
- Prices continue to trade based upon two theories in the industry. The first is that production will continue to grow (now flowing at record average levels) and that there will be more than enough supply into the winter season. The other theory is that production won’t be enough to carry the market through the winter and storage levels are a concern. When there is an equal amount of action with both theories, the market will trade in a range ($2.70-$2.99) that it has for the last four months. As suggested previously, a break down through the July lows at $2.704 will likely set up a slow melt down to $2.568 with volatility increasing. Should the declines find support at the July lows, expect the bounce to test the resistance around the 200-day moving average ($2.834).
- ONEOK announced plans to invest $295 million to expand its West Texas LPG pipeline system, which provides liquids takeaway capacity for Permian producers to Mont Belvieu. The project will expand the pipe’s capacity by 80 MBbl/d and includes additional infrastructure to connect the system to ONEOK’s previously announced Arbuckle II project, which will carry 400 MBbl/d of liquids from the Mid-Continent region to the Gulf Coast. Both projects are expected to be completed in Q1 2020.
- Marathon announced this past week that its subsidiary, MarkWest, launched a binding open season to solicit commitments from potential shippers for a new pipeline that it plans to construct to serve growing NGL needs for Appalachian producers. The pipe will ship a mixed stream of NGLs, including higher molecular weighted hydrocarbons, from Processing plants in WV and PA to fractionators in OH and PA.
- Ethane prices hit 55 cents per gallon last Thursday, its highest in more than six years. Prices are supported by record exports and cracker consumption.
- The EIA reported a build of 1.2 MMBbl in this past week’s inventories. Propane stocks now sit at 74.6 MMBbl, approximately 5.3 lower than this time last year and 8.5 MMBbl lower than the 5-year average.
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