Monday, May 7th, 2018
Oil & Gas Market Update Week Ending May 4, 2018
Crude Oil: Crude opened the week trading slightly lower, but reversed course on Iran concerns. WTI posted a late-day rally following reports from Israeli intelligence which raised concerns that Iran had been plotting to build nuclear weapons in a secret location. It appears that geopolitical risk will remain high until the May 12 deadline for a White House decision on the Iran deal. June WTI added $0.47 Monday to settle at $68.57. Crude moved steadily lower throughout Tuesday’s session, weighed down by rising U.S. crude production, a strengthening Dollar, and ongoing debate over whether the U.S. will pull out of the Iran nuclear deal in the coming weeks. WTI for June delivery fell $1.32 Tuesday to settle at $67.25.
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Wednesday the EIA released its weekly Petroleum Status Report and with it some bearish numbers (see table at bottom right for more detail). While crude and gasoline posted material builds, distillates posted another large draw. It is worth noting that PADD 5 (West Coast) accounted for nearly 80% of the commercial crude build, so the large build this week may not be as bearish as the number may at first suggest. WTI would finish up by $0.68 Wednesday to settle at $67.93. Thursday’s session was unremarkable with little news to drive traders in any particular direction. WTI prices gained $0.50 Thursday to settle at $68.43. Crude prices pushed higher Friday, lifted by falling OPEC production following reports that April production moved down and hit a one year low. Adding to the positive trading sentiment were concerns that fresh sanctions on Iran could further stifle crude output. With this backdrop, June WTI traded nicely higher Friday and would add another $1.29 to settle at $69.72. Over the past week (Friday-to-Friday), June WTI gained $1.62 or 2.4%. (Sources: CME 4/30-5/4/18; WSJ 4/30-5/4/18)
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Natural Gas: EIA released weekly gas storage data Thursday and reported a 62 BCF injection to stockpiles, nearly 13% above consensus expectations. As reference, a 68 BCF injection was reported last year and the 5-year average for the same week was a 69 BCF injection. Total storage now stands at 1.343 TCF and widened to a 534 BCF deficit to the 5-year average. Most weather models are forecasting a heat wave in the East by mid-month, and a hot start to summer could prove a needed short-term catalyst to off-set the growing surplus on the supply side. U.S. dry production rose by 12.4% versus last year. Natural gas demand fell by 7.5% week-over-week but was 4.1% higher versus year-ago levels. Year-over-year demand was driven by gains in LNG exports (+100%) and residential/commercial heating (+12%) offset by modest declines in power generation (-3%). 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 6¢ to $2.73/MMBtu. On the NYMEX, the front month futures contract fell 5.3¢ to $2.754/MMBtu Wednesday. The 12-month strip (currently the average of the June 2018 thru May 2019 futures contracts) also fell this past week, down 6.3¢ to $2.816/MMBtu. (Sources: EIA 5/3/18; CME 5/2/18)
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Newsworthy Oil & Gas Market News:
- Monday, Marathon Petroleum acquired Andeavor (f.k.a. Tesoro) for nearly $36 billion. This will create the largest downstream and midstream firm in the U.S. with 16 refineries, over 3 million barrels per day of refining capacity, nearly 12,000 retail locations, and extensive midstream assets through two MLPs.
- It was a busy E&P earnings week. Some brief thoughts from the more than two dozen companies that reported this past week:
- Production growth is coming in at the high-end or even above expectations
- More companies (about 45% so far) are keeping CapEx spending within cash flow
- Continued/increased focus on balance sheets and shareholders with debt being paid