• US crude oil inventories decreased by 5.2 MMBbl, according to the weekly EIA report. Inventories of gasoline and distillate also decreased by 0.2 MMBbl and 1.6 MMBbl respectively. The most important number to keep an eye on, total petroleum inventories, posted a withdrawal of 3.6 MMBbl. U.S. production continued to build with an increase of 21 MBbl/d last week. Imports declined by 644 MBbl/d to an average of 7.6 MMBbl/d versus the previous week.
• Prices rallied following the EIA’s weekly report due to inventory withdrawals being higher than expected across the board. Saudi Arabia’s expectation that the quotas will be extended through 2017, and possibly beyond, also lifted sentiment. The rising U.S. rig count and production continue to worry the market, as U.S. production growth slows OPEC’s efforts to normalize inventory levels. Until inventories are normalized back to levels from prior to the price crash, no sustainable price increase can be expected. A normalization requires, at the very least, an extension of the quotas and demand growth of 1.3 MMBbl/d as forecasted by the IEA.
• As expected in last week’s report, the latest CFTC report showed an increase in speculative shorts during the week of May 9th. Money managers cut their net long positions to their lowest level since November. In the near term, Drillinginfo expects WTI prices to remain in the $42.20-$50.22/Bbl technical range. Longer term prices will be shaped by the outcome of the OPEC meeting on May 25th and its effects on the stubbornly high global inventories, especially during the high demand summer season.
• Natural gas dry production showed another increase last week of 380 MMcf/d to 70.7 Bcf/d, but remains 1.5 Bcf/d below last year’s levels. The recent gains in production came from the Haynesville, Anadarko and Gulf of Mexico however, most of the increases were due to maintenance being completed.
• On the demand side, some cool temperatures last week caused res/com demand to increase by 720 MMcf/d while power demand declined 1.1 Bcf/d. LNG and Mexican exports remained flat week-on-week.
• The storage report last week was bullish as the 45 Bcf injection was below most market expectations. A higher injection is expected this week in the 60-65 Bcf as demand declined last week, while production increased. This injection will also be lower than last year’s 71 Bcf reported during the same week.
• Prices traded range bound last week until Thursday’s bullish storage report and some adverse news for Rover pipeline, which could delay the start date. The June contract rallied and traded as high as $3.43 per MMBtu. Some of the gains were given back later on Thursday and Friday although the June contract remains strong at $3.39.
• Drillinginfo continues to expect a run in gas prices to provide the additional incentive for production growth and an average 2017 Henry Hub price of $3.50 per MMBtu.
• On Wednesday, West Virginia and Ohio senators introduced a bill to investigate the potential of an underground ethane storage hub in central Appalachia. The bill is intended to optimize Appalachia’s resources in order to drive economic growth and help to advise upcoming projects.
• Inventories increased 2.0 MMBbl in last week’s EIA report. Although exports rose week over week, warmer weather drove the largest injection since August. Propane stocks now sit at 41.6 MMBbl, roughly 31.5 MMBbl lower than this time last year. However, propane stocks are still well above the five-year average of 39.0 MMBbl for this time of year prior to 2015 (before the crude price crash).
• A new propane export terminal has been announced near Prince Rupert, BC. The Ridley Island Propane Export Terminal has a design capacity of 1.2 million tons of propane per year. The site, a 10-day shipping time to Asia, has a geographic advantage compared to the U.S. Gulf Coast which has a 25-day shipping time. This advantage could potentially drive Mt. Belvieu prices down in order to compete with Canadian propane.