Release Time Update: please note this report will now be published every Monday at 12pm MST.


CRUDE OIL

  • US crude oil inventories increased by an unexpected 3.3 MMBbl, according to the weekly EIA report. Inventories of gasoline and distillates also increased by 3.3 MMBbl and 4.4 MMBbl respectively. Given the gains in all three of these major categories, total petroleum inventories increased substantially by 15.5 MMBbl. US production decreased this week by 24 MBbl/d, while imports increased by 356 MBbl/d to an average of 8.3 MMBbl/d versus the previous week.
  • The surprising gains sited in the inventory release were clearly bearish and the market responded accordingly. Price declines were aided by the potential for Nigeria and Libya increasing output faster and the EIA statement that it expects 2018 daily output to hit 10 MMBbl/d. Prices seemed to ignore the geopolitical implications of Saudi Arabia and UAE breaking off diplomatic ties with Qatar.
  • As discussed here previously, the market must have 1) continued high compliance with production quotas and 2) the demand growth projected by IEA. Without these two elements occurring concurrently, global inventories will not return to normal levels this year and prices can’t sustain at higher levels.
  • The price action in WTI last week was extremely bearish on the heels of the inventory release, breaking below support for near term prices at $47/Bbl and starting to challenge the longer-term support at $44/Bbl. The declines meant that momentum indicators approached oversold levels with over 90,000 contracts trading within the first few minutes after the data release, which led to prices falling $1.36/Bbl during the same time. From these initial declines, prices continued declining later in the week but managed some support going into the weekend. Even though the most recent CFTC data release showed an increase of 18,573 contracts by the speculative sector, the longs were liquidating positions during the declines and expect those reductions to show up in the CFTC data release this coming week. Until the market believes the fundamental issues have been resolved, it will be difficult to imagine any substantial gains in WTI. With last week’s inventory numbers and the market’s sharp response, expect prices to digest the declines by consolidating in the near term. The IEA and OPEC monthly reports are due later this week and may shape market sentiment along with the inventory report.
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    NATURAL GAS

  • Natural gas dry production gained 80 MMcf/d last week. Production levels in June TD average 71.8 Bcf/d, over 1 Bcf/d above the average of the first 5 months of the year. Production throughout the summer will need to continue the gains made during May and June for storage levels to rise over 3.7 Tcf by October’s end.
  • On the demand side, power demand increased by 1.76 Bcf/d which was offset slightly by a decline of 1.01 Bcf/d in Res/Com. Some of the gains in power demand are likely linked to recent price declines and further power demand gains are expected with higher temperatures across the country expected this week. Mexico exports were back approaching 4 Bcf/d with a small gain of 9 MMcf/d and the LNG exports were back above 2 Bcf/d, increasing by 370 MMcf/d to the previous week.
  • The storage report last week came in well above most expectations with an injection of 106 Bcf, slightly above expectations and also above the 5-year average and last year’s injections. An injection in the mid-80s Bcf is expected on Thursday’s EIA release, which is in line with the 5-Year average, but compares to a 68-Bcf build reported last year.
  • Despite the substantial injection, prices declined temporarily following the EIA report but rebounded later in the day and finished the week with a slight gain of $0.04 per MMBtu. The price action was consolidated as a lower low was traded and held, but prices remained below the 200-day moving average and the 20-week moving average (both trading around $3.105). The market seems to be pausing around $3.00 to evaluate the upcoming heat this week and what effects the lower prices will have on power demand this summer.
  • The CFTC data release (June 6th) confirmed the previous week’s addition of shorts as the speculative Money Manager’s short position increased by 63,263. The speculative long positions continued to liquidate and reduced their positions by 12,434 contracts. Since prices were above $3.30, the market has absorbed selling of 139,000 contracts from the speculative crowd or more than 8% of total open interest. The new shorts are expecting price action to continue to break down (signaling that the summer demand cycle will not have an impact on ending inventories) and should test lower levels at $2.88 down to $2.70. Buyers are waiting for conclusive evidence that these declines (lower prices) will impact coal-to-gas switching and provide fodder for gains.
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    NGLs
     
    Prices

  • The only NGL product to see price gains week-over-week was ethane. The slight increase in natural gas prices helped to facilitate these gains. Propane, normal butane, isobutane, and natural gasoline prices fell as crude prices fell following the bearish petroleum stock report on Wednesday. Natural gasoline saw the most significant drop at 6% while propane and the butanes saw 3% losses.
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    Propane

  • Inventories increased 3.2 MMBbl in last week’s EIA report, a strong injection for the second week in a row. The last time we saw gains over 3 MMBbl two weeks in a row was back in 2014. The strong build is a result of continued low export levels and high production. Propane stocks now sit at 50.4 MMBbl, roughly 26.9 MMBbl lower than this time last year. However, propane stocks are still slightly above the five-year average of 45.7 MMBbl for this time of year prior to 2015 (before the crude price crash).
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