Tuesday, April 3rd, 2018
Oil & Gas Market Update Week Ending 3-29-2018
Crude Oil: The holiday-shortened week began with little fundamental news in the crude markets. Crude took a breather after posting strong gains last week. Market watchers remain focused on two primary drivers: supply/demand balance and geopolitical risks. WTI for May delivery fell by $0.33 Monday to settle at $65.55. Crude initially opened higher on speculation that the U.S. will tighten sanctions on Iran and withdraw from the 2015 nuclear program agreement, raising the potential disruptions in the global oil trade. While geopolitical risks tied to Iran remain top-of-mind, traders also focused on the upcoming release of inventory data (due out Wednesday) and the continued surge in U.S. crude production. WTI would waver between gains and losses on all this market chatter with May WTI ending the day lower by $0.30 Tuesday to settle at $65.25. EIA released its weekly Petroleum Status Report on Wednesday and the data was on the whole bullish (see table at bottom right for more detail). While crude inventories built ahead of expectations, the number was well below API’s report late-Tuesday of a 5.3MM barrel build. We also saw comfortable draws in products. On the other hand, a large 1.8MM barrel build in Cushing and another week of record production were not positives.
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Despite a bullish leaning report, like the past few days the energy markets were pressured as the equity markets stumble, uncertainty remained about how the global economy will fare if trade tensions escalate, and rising U.S. crude production. WTI fell for a third-consecutive day, down $0.87 Wednesday to settle at $64.38.
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In front of the holiday weekend, markets sprinted higher. Crude also rode this wave higher, but was also helped by comments out of OPEC. Specifically, Bloomberg reported that some OPEC producers and allies are considering prolonging efforts to reduce the global supply glut by another six months up to the middle of next year, Iraqi Oil Minister Jabbar al-Luaibi said at a conference in Baghdad. WTI moved up $0.56 Thursday to settle at $64.94. Markets will be closed Friday in observance of the Good Friday holiday. Over the past week (Friday-to-Thursday), May WTI lost $0.94 or 1.4%. (Sources: CME 3/26-29/18; WSJ 3/26-29/18)
Natural Gas: EIA released weekly gas storage data Thursday and reported a 63 BCF withdrawal to stockpiles, more than 3% above expectations. As reference, a 58 BCF withdrawal was reported last year and the 5-year average for the same week was a 46 BCF withdrawal. Total storage now stands at 1.383 TCF and widened to a 346 BCF deficit to the 5-year average (withdrawal season runs November thru April). U.S. dry production rose by 11.7% versus last year. Natural gas demand fell by 3.4% week-over-week but was 13.6% higher versus year-ago levels. Year-over-year demand growth was driven by strong gains across the natural gas spectrum with notable gains in residential/commercial heating (+26) and LNG export (+74%). Despite recent cold weather, record levels of production continue to put a lid on prices as we continue to see natural gas pressured across the strip with Henry Hub struggling to hold on to the $3.00/MMBtu level. Over the EIA’s report week (Wednesday-to-Wednesday) the Henry Hub spot price moved down by 6¢ to $2.64/MMBtu. On the NYMEX, the front month futures contract added 3.1¢ to $2.698/MMBtu Wednesday. The 12-month strip (currently the average of the May 2018 thru April 2019 futures contracts) rose this past week, up by 2.1¢ to $2.857/MMBtu. (Sources: EIA 3/29/18; CME 3/28/18)
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- Blockbuster shale deal! Wednesday, Concho agreed to acquire RSP Permian for $9.5B in stock and the assumption of debt. This is the largest Permian deal ever and also represents one of the largest ever shale deals period. By our account it is bested only by Repsol’s nearly $13B acquisition of Talisman in late-2014. RSP has premium Midland and Delaware Basins assets which will add ~92,000 NMA and ~62,500 BOE/d to Concho’s existing ~550,000 NMA Permian footprint. We note that Concho does appear to be paying a hefty price for these premium assets at nearly $105,000 per acre.
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Coachman Energy Operating Company’s Weekly and Quarterly Oil & Gas Market Updates provide an aggregate look at various trends in the oil and gas industry. CEOC and any third parties listed are separate and unaffiliated and are not responsible for each other’s products, services or data. Information is provided for educational purposes only.
by Randy Kenworthy