Wednesday, May 2nd, 2018
Oil & Gas Market Update Week Ending April 27, 2018
Crude Oil: Crude began the week under pressure as the rally over the last two weeks looks to be a bit overdone as technical overbought indicators were calling for a correction. Adding to the early selling pressure and likely profit taking was yet another rise in the U.S. rig count as well as remarks by President Trump that OPEC is artificially holding up crude prices with plenty of world supplies. June WTI steadily erased its morning losses and would move up $0.24 Monday to settle at $68.64; recall, the May contract expired last Friday and the June contract became the front-month contract Monday. Bond markets moved lower Tuesday, with the benchmark U.S. treasury yield topping 3% for the first time in over four years. This milestone spooked investors and helped to send equity markets lower and also hit the crude markets. Additionally, tempered comments from Mr. Trump regarding Iran eased the geopolitical risk tied to the nuclear deal and what may happen when the U.S. reviews its position on May 12. WTI for June delivery lost $0.94 Tuesday to settle at $67.70.
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Wednesday brought the regular release of EIA’s weekly Petroleum Status Report and the data tilted to the bearish side (see table at bottom right for more detail). Crude and gasoline inventories both built counter to expectations for draws, but we did see a large drop in distillates and a strong rebound in exports. WTI would finish up by $0.35 Wednesday to settle at $68.05. Thursday’s session was a sea of relative calm with little in the way of market moving news. Following early weakness, WTI firmed up later in the session and would add $0.14 Thursday to settle at $68.19. Friday saw North Korean leader Kim Jong Un pledge to work towards denuclearizing the Korean peninsula which was unexpected and helps ease tensions in that region. While this is welcome news and reduces geopolitical tensions in one region, Venezuelan production remains at multi-year lows and the conflict with Iran is still on the forefront. With this backdrop, June WTI traded narrowly in and out of negative territory Friday and would end the day down by $0.09 to settle at $68.10. Over the past week (Friday-to-Friday), June WTI lost $0.30 or 0.4%. (Sources: CME 4/23-27/18; WSJ 4/23-27/18)
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Natural Gas: EIA released weekly gas storage data Thursday and reported an 18 BCF withdrawal to stockpiles, nearly one-third higher than consensus expectations. As reference, a 71 BCF injection was reported last year and the 5-year average for the same week was a 60 BCF injection. Total storage now stands at 1.281 TCF and widened to a 527 BCF deficit to the 5-year average. This is the lowest storage number since May 2014. Most forecasts call for injection season to kick off next week. U.S. dry production rose by 12.5% versus last year. Natural gas demand fell by 5.3% week-over-week but was 14.9% higher versus year-ago levels. Year-over-year demand growth was driven by strong gains in residential/commercial heating (+45%), LNG exports (+55%), and exports to Mexico (+26%). A point we keep repeating is that while demand is holding up its side of the equation, record levels of production have kept 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 fell by 5¢ to $2.79/MMBtu. On the NYMEX, the front month futures contract rose 4.7¢ to $2.786/MMBtu Wednesday. The 12-month strip (currently the average of the May 2018 thru April 2019 futures contracts) also moved up this past week, gaining 1.2¢ to $2.879/MMBtu. (Sources: EIA 4/26/18; CME 4/25/18)
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- Thursday, Northern Oil & Gas announced the acquisition of Salt Creek Oil & Gas (a subsidiary of Germany-based Deutsche Rohstoff AG) for ~$50MM in cash and stock. The Williston Basin assets cover ~1,320 NMA and produce nearly 1,400 BOE/D.
- E&P first quarter earnings have begun to trickle out. Shell, Range Resources, QEP, Total, ConocoPhillips, Hess, Statoil, Exxon, and Chevron were among a handful of firms that reported results this week. We will have more to say next week after more quarterly results have been disclosed in what is shaping up to be the most active release week this quarter.
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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