- US crude oil inventories posted an increase of 7.0 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 7.7 MMBbl and 0.1 MMBbl, respectively. The total petroleum inventories showed an increase of 4.1 MMBbl. US crude oil production remained the same as the previous week, per EIA. Crude oil imports were down 0.16 MMBbl/d to an average of 6.6 MMBbl/d versus the week prior.
- WTI opened last week by extending prices higher based on news from Libya that the Libyan National Army launched a campaign to take control of Tripoli, suggesting lower production due to the unrest. This news supported the price rally, along with continued supply reductions from OPEC and non-OPEC participants.
- Despite the positive bias early in the week, prices started to digest some of the negative elements of the current market as the week progressed. First and foremost was the news that Russian Energy Minister Alexander Novak announced that supply cuts would be unnecessary if the market was expected to be balanced in the second half of the year. This news was met with more negative news, including that the US government may impose tariffs on European goods and the IMF is lowering its global economic growth forecast. The economic announcement regarding growth brought the market back to the reality of how precarious the recent gains remain long term.
- The CFTC report (positions as of April 9) continued the recent trend with the speculative commitment aiding the recent gains. The Managed Money long component increased length by 26,149 contracts, while the Managed Money short component covered 8,207 contracts. Evidence continues to build that the speculative bulls are adding positions on any type of retracement in spite of another bearish inventory report. The report also identified the Merchant Short position (producers hedging) increased by 38,977 contracts and the refiners (hedging input costs) increased by 30,908 contracts. The refiners increasing their hedges reflects a respect for the recent gains and the bullish condition of a market that continues to rise even when the data affecting the market is bearish.
- Last week’s close ($63.76) was the sixth consecutive higher close and confirms the bullish sentiment that the WTI maintains. Market internals reflect the bullish bias, with the momentum indicators being bullish but nearing overbought levels. The volume was significantly stronger last week than the previous week, with a significant amount of the increase on Monday. Open interest showed some gains, which is important as these two elements — volume and open interest gains while prices rise — are required for any sustained run in prices.
- Last week WTI prices gave their first indication that the price run may follow a more traditional bullish extension. While trading higher early in the week, prices respected the bearish inventory numbers from the EIA and the headline news and promptly started to retrace some of the week’s gains. The $0.50 decline in WTI during the last 45 minutes of trade on Friday is indication that some of the bullish elements are taking profits on short-term gains. This profit activity is part of a bull market behavior pattern. Participants need to collect profits before adding to additional commitments, and this usually leads the market to periods of consolidation that have been discussed before.
- The key this week is how far the declines will go to support before bullish participants add to existing positions. Further extensions taking prices between $65 and $68 (an area of consolidation from last fall during the price collapse) will likely run into selling. Some of that selling was from US producers, and this behavior is likely to continue on price runs allowing the US producer access to higher-priced hedges. Should prices continue a consolidation phase for WTI trade, a potential retracement to the breakout area around $60.00 should be expected.
- Natural gas dry production decreased 0.85 Bcf/d, with the majority of the losses coming from Louisiana (-0.42 Bcf/d). Canadian imports decreased 0.21 Bcf/d.
- Res/Com demand fell 8.27 Bcf/d, while Power and Industrial demand dropped 0.41 Bcf/d and 1.23 Bcf/d, respectively. LNG exports fell 0.26 Bcf/d on the week, while Mexican exports increased 0.10 Bcf/d. For the week, total supply fell 1.34 Bcf/d, while total demand dropped 10.43 Bcf/d.
- The storage report last week came in with reclassifications and showed an implied flow of 29 Bcf and a net flow of 25 Bcf. Total inventories are now 183 Bcf below last year and 485 Bcf below the five-year average. Based on supply and demand fundamentals, a larger injection is expected this week.
- The CFTC report (as of April 9) showed the Managed Money long sector reducing positions by 16,130 contracts while the short position increased by 6,204 contracts. This continues the trend of the last few weeks, which has the long traders reducing positions on rallies while the short trade adds to short positions. Should the shorts continue to pressure prices lower, long-term support is just below current prices, and the historical calendar (prices rise during Q2) does not favor declines into May and June.
- Market internals are developing a bearish bias from neutral the previous week. Prices traded in a smaller range ($0.078) and closed $0.004 below the previous week’s close. Volume increased week over week, and open interest showed a strong gain over the previous week. While total open interest is below historical levels, it does not deny the potential for a directional bias to price movement. Last week’s gains could be construed as the beginning of a short-term directional bias.
- Last week’s failure to break above the previous week’s high signals that the market has little or no interest in higher prices. Accordingly, a test of major support (over three years) that exists in a well-defined range between $2.522 and $2.560 should be expected in the coming weeks. That said, historical price action allows that the lows in late winter (usually February through April) are established prior to prices firming, as the market enters the primary injection season and the summer power-demand period. If this market is headed for a test of the well-defined support, it is likely to occur before the end of the month. Consider the recent weekly highs between $2.729 and $2.733 to find sellers during the coming week.
NATURAL GAS LIQUIDS
- ONEOK’s Elk Creek pipeline is expected to be completed by year-end 2019. This pipeline will run from ONEOK’s Riverview terminal in eastern Montana to its facilities in Bushton, Kansas, and is expected to bring an additional 240 MBbl/d to the Conway area. However, when Elk Creek hits the market, downstream fractionation and purity product takeaway at Conway will likely become an issue, as few frac and pipeline projects are expected to come online.
- Prices were up across the board last week. The largest percentage increase was ethane, which jumped 8.3%, or $0.018, to $0.231. This jump was followed by propane, which was up $0.029 to $0.646, normal butane up $0.023 to $0.767, natural gasoline up $0.030 to $1.309, and isobutane up $0.008 to $0.771.
- US propane stocks increased ~1.2 MMBbl the week ending April 5. Stocks now sit at 54.4 MMBbl, roughly 18.5 MMBbl and 14.0 MMBbl higher than the same week for April 2018 and April 2017, respectively.
- Based on customs manifests, weekly waterborne crude imports are quite low this week, especially to PADD 3, which is only slightly higher than 1 MMBbl/d. Imports to Houston increased to the highest level since mid-February, but that was overshadowed by declines at Corpus Christi, Lake Charles, Mobile, Pascagoula, and Texas City. No bills of lading were filed for arrivals to Morgan City, which is the delivery port for LOOP cargoes. PADD 1 imports were close to 320k bbl/d, while PADD 5 was at 596k bbl/d. PADD 3 crude imports from Iraq were at zero for the second time since mid-March, but only the fifth time since the beginning of 2017.