- US crude oil inventories posted an increase of 6.8 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories increased 3.2 MMBbl and 4.6 MMBbl, respectively. Total petroleum inventories showed a substantial increase of 22.4 MMBbl. US crude oil production increased 100 MBbl/d last week per EIA. Crude oil imports were up 1.07 MMBbl/d to an average of 7.3 MMBbl/d versus the week prior.
- As expected, price declines were extended in early trade last week. Trade tensions between the US and China have subdued global economic growth and brought a distinctly bearish bias to trade. Manufacturing activity from China was disappointing, shrinking more than expected and confirming the market’s concerns about global economic activity. The market then had to assess potential tariffs on Mexican goods entering the US, but this measure was rejected upon President Trump’s return to the US on Friday.
- News of the possibility of OPEC extending the supply cuts to the second half of the year and the ongoing tensions in the Middle East seemingly brought some modesty to the declines. Saudi Arabian energy minister Khalid al-Falih stated that a consensus was emerging among producers to continue working to “sustain market stability.” It is unclear whether Russia has interest in participating in the supply cut extension. Final announcement will occur at the upcoming OPEC meeting later in the month or early in July.
- Weakness in prices was manageable until the inventory release that showed an alarming build in total petroleum stocks. The release brought another wave of selling and pressured prices down to early January levels, just above $50/Bbl. These declines left the momentum indicators at extremely oversold levels, setting the market up for a countertrend bounce toward the end of the week.
- The CFTC report (positions as of June 4) brought forth additional selling from the bulls as the Managed Money long component sold 18,133 contracts while the short position added 12,798 contracts. Much of the liquidation occurred when prices broke through support around $57/Bbl and continued early last week.
- Prices maintain a distinctly bearish bias. Evidence is starting to mount that the US equity market and WTI move in the same direction, with both of these directly correlated to economic growth in the US and globally. Last week’s late gains were also met with a significantly lower dollar index, with further gains in US Treasury (10-year). Traders are still spooked by the current global markets, and the announcement from the US Federal Reserve Chairman Jerome Powell, hinting at a possible rate cut, does little to bestow a bullish spin on growth in the markets. This outlook may be a catalyst to the equity/risk markets in the near term.
- The news of Mexican tariffs being withdrawn will likely support prices early in the coming week. With the strength of prices last Friday, follow-through gains going into this week should be expected. A break above last week’s high ($54.63) should carry the run to the key area from two weeks ago, between $56 and $57.33, where the selling should intensify. Declines back to $51.23 and to last week’s lows of $50.60 will find significant buying. The market may be developing a new range between $50 and $57 for the near term as we head into the OPEC meeting and the G20 summit, which may bring news regarding the US and China tariff standoff.
- Natural gas dry production showed a decrease of 0.77 Bcf/d, with most of the declines coming from Pennsylvania (-0.29 Bcf/d) and Texas (-0.21 Bcf/d). Canadian imports increased by 0.38 Bcf/d.
- Res/com demand showed a drop of 0.59 Bcf/d, while power demand increased 2.30 Bcf/d as the market heads into the early summer season. Industrial demand gained 0.12 Bcf/d. LNG exports fell 0.32 Bcf/d, and Mexican exports increased by 0.07 Bcf/d. These events left the total supply dropping 0.39 Bcf/d while total demand increased by 1.59 Bcf/d.
- The storage report last week showed the injections for the previous week at 119 Bcf. Total inventories are now 182 Bcf higher than last year and 240 Bcf below the five-year average. With demand outgaining supply last week, expect the EIA to report a weaker injection next week.
- The CFTC report (as of June 4) showed the Managed Money long sector decreasing positions by 1,340 contracts while the short position took an aggressive position of additional weakness by adding 41,037 contracts. Additional gains were likely as prices fell after the expiration of the June contract and into the first few days of the prompt July contract., as suggested last week.
- Market internals continue to show a bearish bias; total volume has increased substantially week over week, while total open interest also gained (according to preliminary data from the CMS) on the week. Momentum indicators remained bearish but are starting to reach extremely oversold levels.
- The current market direction is based on strong production with a lack of early summer demand. As long as these fundamental combinations remain, the market is likely to probe lower. Should summer demand remain anemic, prices may head down to the $2.00 level (or below) in the early fall. The market will not get to that level directly, but will need periods of consolidation before that type of collapse. Due to the oversold levels currently present in prices, look for the potential countertrend bounce in the coming weeks. Any rally in prices will run into selling at last week’s highs of $2.475 and up to $2.573. Further probes lower will likely challenge a zone from May 2016, between $2.288 and $2.151.
- The winter strip continued to weaken, just not at the same rate as the prompt July contract. The CFTC report identified that some of the selling was due to the producer hedging the upcoming winter sales. The winter strip seems to be correlated more closely to the prompt month than it was earlier in the spring, promoting storage operators to utilize the weak daily cash prices by offsetting with hedges against the winter spreads.
NATURAL GAS LIQUIDS
- Meritage Midstream and subsidiary Thunder Creek NGL Pipeline have launched a binding open season for the expansion of the pipeline. The expansion will take gas from processing plants in Campbell and Converse counties in Wyoming, and will interconnect with the ONEOK Bakken Pipeline in Converse, allowing additional y-grade volumes to reach fractionation facilities and storage at Conway via ONEOK’s Overland Pass Pipeline.
- Purity product prices dropped significantly across the board. Ethane fell $0.027 to $0.202, propane down $0.082 to $0.445, normal butane down $0.116 to $0.473, isobutane down $0.106 to $0.500, and natural gasoline down $0.138 to $0.998.
- US propane stocks increased ~2.5 MMBbl during the week ending May 31. Stocks now sit at 68.3 MMBbl, roughly 21.2 MMBbl and 17.9 MMBbl higher than the same week in 2018 and 2017, respectively.
- US waterborne imports of crude oil rose for the week ending June 7, according to DrillingInfo’s analysis of manifests from US Customs and Border Patrol. This increase was driven mostly by an increase in imports to PADD 1. As of June 10, PADD 1 imports stood at nearly 1.25 MMBbl/d for the week, while PADD 5 imports rose slightly to more than 1.22 MMBbl/d. PADD 3 imports dropped from the prior week and are at 1.6 MMBbl/d.
- The imports to PADD 1 are the highest reported since July 2018. The biggest origin for crude into PADD 1 was Norway, which contributed more than 540 MBbl/d of Ekofisk. These barrels were imported by PBF Delaware City and PES Philadelphia. So far this month, those two refineries have imported nearly 4 MMBbl of Ekofisk, far exceeding any month since at least 2017. Ekofisk is a light sweet crude oil and one of the grades of crude that make up the Brent benchmark.