Tuesday, May 15th, 2018

Oil & Gas Market Update Week Ending May 11, 2018

Crude Oil: Crude started the week by breaching the $70 level for the first time since November 2014. Over the weekend there was news from Iranian President Hassan Rouhani that the country would not negotiate a new nuclear deal. Therefore, the threat of decreased Iranian supplies took front and center stage to begin the week. June WTI added $1.01 Monday to settle at $70.73. Tuesday was all about geopolitical risks. The White House moved up its decision on Iran from the May 12 deadline and officially withdrew the U.S. from the Iran nuclear deal. The President also indicated the U.S. would put “powerful” economic sanctions back “into full effect.” According to most analysts surveyed by S&P Global Platts, re-imposing U.S. oil sanctions on Iran will likely have an immediate impact of less than 200,000 BOPD and will block less than 500,000 BOPD of exports after six months. What remains uncertain is the future of the OPEC production cut agreement. Crude had been trading sharply lower throughout the day, but this announcement led to a spike and erased nearly half the losses. WTI for June delivery dropped ‘only’ $1.67 Tuesday to settle at $69.06. Wednesday the EIA released its weekly Petroleum Status Report and numbers were bullish (see table at bottom right for more detail).

West Texas Intermediate WTI Crude Oil Closing Price Week Ending May 11, 2018

Total stocks fell just over three-times expectations. A sticking point, if any, in the data was the continued upwards march of production, with Lower-48 crossing over the 10.2 MMBOPD mark, up nearly 100,000 BOPD this week alone. Bullish data notwithstanding, Tuesday was a triple whammy of perceived decreases in Iranian exports, the realization that Venezuelan production will likely continue to fall, and dropping U.S. inventories. WTI opened higher and built on these gains throughout the day to finish up by $2.08 Wednesday to settle at $71.14. Following two active days of trading, Thursday’s session was relatively calm and little in the way of new news. After spending most of the day in negative territory, WTI finished up by $0.22 Thursday to settle at $71.36. Crude fell Friday after surging to a more-than three-year-high earlier in the week. Profit-taking was the likely culprit as well as a sixth-straight increase in the weekly rig count. June WTI traded lower throughout Friday’s session and would end the day down by $0.66 to settle at $70.70. Over the past week (Friday-to-Friday), June WTI gained $0.98 or 1.4%. (Sources: CME 5/7-11/18; WSJ 5/7-11/18)

Brent Crude Oil Closing Price Week Ending May 11, 2018

Natural Gas: EIA released weekly gas storage data Thursday and reported an 89 BCF injection to stockpiles, roughly 5% below consensus expectations. As reference, a 48 BCF injection was reported last year and the 5-year average for the same week was a 74 BCF injection. Total storage now stands at 1.432 TCF and narrowed to a 520 BCF deficit to the 5-year average. U.S. dry production rose by 12.5% versus last year and continues to be driven by gains in the Marcellus, Utica, Haynesville, and Permian. Natural gas demand fell by 3.6% week-over-week and 1.4% year-over-year. Year-over-year demand was driven by gains in LNG exports (+43%) and power generation (+18%) being more than offset by a drop in residential/commercial heating (-39%). While demand drivers remain sound on the whole, record levels of production continue to keep sub-$3.00/MMBtu level lid on prices. Over the EIA’s report week (Wednesday-to-Wednesday) the Henry Hub spot price fell by a penny to $2.72/MMBtu. On the NYMEX, the front month futures contract fell 1.7¢ to $2.737/MMBtu Wednesday. The 12-month strip (currently the average of the June 2018 thru May 2019 futures contracts) was also lower this past week, down 4.0¢ to $2.775/MMBtu. (Sources: EIA 5/10/18; CME 5/9/18)

Natural Gas Closing Price Week Ending May 11, 2018

Newsworthy:

Petroleum Status Report Week Ending May 4, 2018E&P quarterly earnings mostly wrapped up this week with announcements out of Cimarex, Northern, Oasis, Carrizo, Diamondback, Extraction, SandRidge, WildHorse, Centennial, and a few others. This earnings season can be summed up with managements focused on (1) production growth (BOEPD up on average 1.6% yr/yr among our tracked firms), (2) hedging now hurting most (average hit to pricing of more than 6% of the firms we track) given strong upwards move in crude and (3) increasing focus on shareholders (buybacks and dividends).