Tuesday, April 24th, 2018
Oil & Gas Market Update Week Ending 4-13-2018
Crude Oil: Geopolitics ruled the week! Following a sharp sell-off last week on escalating trade tensions between China and the U.S., traders returned Monday to the belief that cooler heads will prevail amongst all this posturing. Over the weekend, policy makers dialed back some of their harsh rhetoric on trade. Markets rallied across the globe—including energy markets—on the view that global economic growth and resulting demand for crude would remain intact. Adding to the rally in crude were reports of a missile strike in Syria as well as reports of a suspected chemical attack in Syria. WTI for May delivery gained $1.36 Monday to settle at $63.42. Tuesday brought more worry of the situation in Syria and hope from continued easing of trade tensions. President Donald Trump praised China’s President Xi Jinping’s “kind words” following the Chinese leader’s reaffirmed pledge to continue to open the country’s banking and manufacturing sectors in a speech. May WTI sprinted higher by another $2.09 Tuesday to settle at $65.51.
EIA released its weekly Petroleum Status Report on Wednesday and the data was quite bearish (see table at bottom right for more detail). Crude inventories built well ahead of expectations as did gasoline stocks. Record production continues, and Lower-48 data surpassed 10 million BOPD for the first time in history. Despite all this negativity, geopolitical risk ruled the day. Just as risks fade that a global trade war might break out, concerns rise over a possible U.S. strike on Syria. Markets quickly turned their attention to the possibility of renewed U.S. intervention into Syria as the President appeared to begin rallying allies as preparations intensify for a response to a suspected chemical attack in Syria. WTI pushed still higher, up $1.31 Wednesday to settle at $66.82. Following several days of strong gains tied to heightened geopolitical risks in the Middle East, crude took a modest breather on Thursday generally bouncing around in negative territory. A late-afternoon surge pushed WTI into positive territory and was able to add $0.25 Thursday to settle at $67.07. Crude again traded narrowly Friday with little new news in the geopolitical landscape to alter traders’ perceptions. By the close of trading, WTI for May delivery would hold on to a gain of $0.32 Friday to settle at $67.39. Over the past week (Friday-to-Friday), May WTI gained $5.33 or 8.6%. (Sources: CME 4/9-13/18; WSJ 4/9-13/18)
Natural Gas: EIA released weekly gas storage data Thursday and reported a 19 BCF withdrawal to stockpiles, more than a third above expectations. As reference, a 9 BCF injection was reported last year and the 5-year average for the same week was a 10 BCF injection. Total storage now stands at 1.335 TCF and widened to a 375 BCF deficit to the 5-year average (withdrawal season runs November thru April). U.S. dry production rose by 11.3% versus last year. Natural gas demand rose by 7.4% week-over-week and was 24.6% 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 (+67%) and LNG exports (+52%). While demand is holding up its side of the equation, record levels of production continue to put a lid on prices. 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 8¢ to $2.69/MMBtu. On the NYMEX, the front month futures contract fell 4.3¢ to $2.675/MMBtu Wednesday. The 12-month strip (currently the average of the May 2018 thru April 2019 futures contracts) also fell this past week, down by 4.7¢ to $2.829/MMBtu. (Sources: EIA 4/12/18; CME 4/11/18)
Newsworthy: Friday, the NDIC reported February production in North Dakota sequentially fell by 4,800 BOPD to 1,174,800 BOPD, down 0.4% sequentially (impacted by cold temperatures) but 13.6% higher versus year-ago levels. Generally, production in the basin continues to steadily push higher and is approaching the all-time high of 1.227 million BOPD achieved in December 2014.
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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