March 15, 2018

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EIA Projected To Announce Slightly Bullish -103 BCF Natural Gas Storage Withdrawal For March 3-9 Today; Gas Demand To Tumble Today As East Coast Temperatures Moderate; Crude Oil Storage Surplus Hangs On After Larger-Than-Expected Inventory Build, But Gasoline Inventories Plunge In Overall Bullish Petroleum Status Report

6:00 AM EDT, Thursday, March 15, 2018
In its weekly Petroleum Status Report, the EIA announced Wednesday morning that crude oil inventories rose by +5.0 MMbbls for the week of March 3-9. This was considerably larger than Tuesday's American Petroleum Institute (API) +1.2 MMbbl projection and was slightly bearish compared to the 5-year average +3.75 MMbbl build.

In its weekly Petroleum Status Report, the EIA announced Wednesday morning that crude oil inventories rose by +5.0 MMbbls for the week of March 3-9. This was considerably larger than Tuesday's American Petroleum Institute (API) +1.2 MMbbl projection and was slightly bearish compared to the 5-year average +3.75 MMbbl build.

As a result of the build, crude oil storage levels rose to 430.9 MMbbls while the long-standing storage surplus versus the 5-year average inched higher to +3.7 MMbbls, still down -97.3 MMbbls year-over-year, as shown in the Figure to the right. Despite the build, crude oil inventories are still expected to flip to a storage deficit versus the 5-year average fort he first time in 4 years within the next 1-3 weeks.

Regardless, the bearish crude oil storage build was more than cancelled out by a massive -6.3 MMbbls drawdown in gasoline inventories (5-year average: -2.6 MMbbls) as refinery utilization rose 2% week-over-week to 90%, up 5% year-over-year, and distillates fell by -4.3 MMbbls (5-year average: -0.7 MMbbls). As a result, Total Petroleum Inventories (crude oil + gasoline + distillates) fell by -5.6 MMbbls, making the overall report quite bullish versus the 5-year average +0.5 MMbbl Total Petroleum Inventory build. Regarding crude oil supply and demand, crude oil domestic production inched higher by 12,000 barrels/day to a new record high of 10.38 MMbbls/day, but total supply fell by 0.41 MMbbl/day week-over-week as imports slid to 7.59/MMbbls. Total supply is still up a massive +1.46 MMbbls/day from 2017. However, these gains are more than cancelled out on the demand side, driven by refinery input (16.4 MMbbls/day, up 0.9 MMbbls/day year-over-year) and exports (1.49 MMbbls/day, up 0.8 MMbbls/day year-over-year), leading to a tight year-over-year supply/demand balance.

For more on oil and refined product inventories and supply/demand data, please see my Crude Oil Storage Page HERE.

Despite the larger-than-expected build in crude oil inventories, I view Wednesday's report as overall quite bullish. Once the driving season kicks into gear by late April and early May, I am expecting some very large storage withdrawals due to the refinery utilization already clearing 90%, up 5% year-over-year. In fact, I was hoping that investors overreacted and drove oil under $60/barrel yesterday so I could build my long position further. Alas, this did not happen as, after a brief post-report 0.5% decline, oil rallied into the close and finished up 25 cents or 0.4% to settle at $60.96/barrel. My 6-month price target for the commodity remains at $70/barrel. Meanwhile, ahead of today's EIA Natural Gas Storage Report, that commodity pulled back 6 cents or 2% to $2.73/MMBTU after a week of steady gains as investors took profits and the March and early April temperature outlook trended slightly less favorable. My Oil & Natural Gas Portfolio recovered from losses on Monday and Tuesday, rallying +0.8% to boost gains since the portfolio's inception on May 1, 2017 back up to +40.4%, within 1% of all-time highs. The portfolio is up +7.3% year-to-date so far in 2018, or +36.6% annualized. As a reminder, subscribers gain access to my realtime portfolio holdings, recent trades and twice-weekly investing commentaries detailing my market outlook and near-term trading strategy on my password-protected Portfolio Page. To learn more about subscribing and helping to support the site, please click HERE.

The EIA will release its weekly Natural Gas Storage Report for the week of March 3-9 this morning at 10:30 AM EDT. I am projecting a -103 BCF storage withdrawal for the week, which would be a slight 6 BCF bullish versus the 5-year average -97 BCF draw. However, it would be the first triple-digit withdrawal since the week of February 10-16 and the first overall bullish withdrawal versus the 5-year average overall since the week of February 3-9. Additionally, it would be 48 BCF larger than last year's withdrawal. As shown in Figure 3 below, a -103 BCF withdrawal would be the fourth largest in the past 5 years, behind -153 BCF in 2014 and twin -132 draws in 2013 and 2015, but well ahead of anemic -55 BCF and -17 BCF withdrawals in 2017 and 2016, respectively. The strong withdrawal was driven by a weather-related spike in heating demand with residential/commercial demand jumping more than 5 BCF/day week-over-week to just under 35 BCF/day. Weather-related demand was boosted by a sharp cool down in which US population-weighted mean temperatures averaged 46.3F last week, down 5.3F week-over-week and very close to historical normals for the first time in a month. Withdrawals were also supported by a rare weekly decline in US production, which, by EIA estimates, fell 0.4 BCF/day week-over-week to 78.1 BCF/day, still up over 6.5 BCF/day year-over-year. Should a -103 BCF draw verify, natural gas inventories would fall to 1522 BCF, the lowest since April 7, 2015. The storage deficit versus the 5-year average would grow to -306 BCF - still down 180 BCF from the January 2018 peak of -486 BCF - while the year-over-year deficit would climb to an impressive -728 BCF, a new 4-year high. Click HERE for more on this week's projected storage withdrawal.

Despite the expected slightly bullish withdrawal, I feel that investors have already largely baked the draw into the price and are already more focused on the late March and early April temperature outlook as a near-term driver for natural gas prices. That being said, I expect that should the EIA report a storage withdrawal of over -105 BCF, this would be viewed as unequivocally bullish and suggestive of a tight supply/demand balance without any demand decay as a result of the latest rally. Such a draw could prompt a near-term rally to near $2.80/MMBTU.On the other hand, should the EIA report a -95 BCF or smaller withdrawal--bearish versus the 5-year average--this would be viewed as a disappointment and concerning for a loosening market and could result in prices falling under $2.70/MMBTU near-term. A reported withdrawal between -95 BCF and -105 BCF would be neutral with prices equally likely to rally or pullback. Regardless, should the near-term temperature outlook trend sharply milder or colder, I expect that this would overwhelm anything the EIA reports today and be the primary determinant of natural gas prices for the next week or two. Presently, I am near-term cautiously bearish on natural gas with a price 2-month price target of $2.50/MMBTU, but should powerburn trend suitably higher year-over-year during the shoulder season to counter the large gain in supply, I may flip back to bullish by the beginning of the summer ahead of new natural gas infrastructure coming online later in the year.

Check back at 10:30 AM EDT for the official EIA storage withdrawal on my Current Natural Gas Inventories Page HERE. Also, I now have weekly natural gas supply and demand statistics on my Natural Gas Supply & Demand Page HERE that should be updated between 3 pm and 4 pm EDT.

After peaking Thursday with a strong -19 BCF/day daily withdrawal, more than twice the 5-year average, natural gas demand will begin to fade today as temperatures moderate ahead of the next Nor'Easter (yes, there could be another one), but will remain comfortably above-average. Highs today will be seasonally cool across the major demand centers of the Eastern Seaboard with the Washington, DC-to-Boston corridor generally seeing readings in the mid-40s to lower-50s, or 0F-5F cooler-than-normal. Similarly, the upper Midwest and northern Plains will be seasonally cool with Minneapolis and Detroit both topping out near 40F and Chicago reaching the upper 40s, all within 5F of average. The largest warmer-than-average anomalies will be found across the Southern Plains and Texas with highs warming into the 70s as far north as northern Kansas. Topeka, Ks could reach 74F today, 18F warmer than normal, while Oklahoma City could even approach 80F. Overall, the forecast mean population-weighted nationwide temperature today will rise 2.7F day-over-day to 47.7F today, still 1.4F below-average. Total Degree Days will drop to 16.8 TDDs today, 0.2 TDDs greater than normal and the 12th most for March 15 in the last 37 years since 1981. Click HERE for more on today's temperature and degree day forecast. Based on this outlook and early-cycle pipeline data, I am projecting a -12 BCF/day daily natural gas storage withdrawal, 7 BCF smaller than Thursday, but still 4 BCF bullish versus the 5-year average -8 BCF/day. Click HERE for more on today's projected daily storage withdrawal and intraday natural gas inventories. Natural gas demand will hold steady comfortably above-average on Friday to finish out the week. For the entire week of March 10-16, I am projecting a second straight bullish storage withdrawal of -104 BCF, 51 BCF larger than the 5-year average withdrawal and the second largest withdrawal for the March 10-16 period in the last 5 years. Should it verify, natural gas inventories would fall to 1418 BCF while the storage surplus versus the 5-year average while the year-over-year deficit will drop back under -700 BCF to -695 BCF. I will have much more on this week's projected storage withdrawal in Friday's commentary but until then check out my Weekly Storage Page HERE.In other news, LNG feedgas demand fell 1 BCF last week to 22.91 BCF as flows to Cove Point, which had jumped to 50% capacity the previous week, returned to nearly zero. Still, the plant exported its first cargo on board the LNG tanker Gemmata on March 1 and the Methane Spirit is currently en route to likely export the plant's second cargo within the next 2 weeks. Click HERE for more on LNG feedgas demand and tanker positions. Once the 0.8 BCF/day plant completes its commissioning and begins receiving regular flows, total LNG feedgas demand to the Sabine Pass and Cove Point plants will be near 4 BCF/day. However, LNG exports will then likely plateau for the next 6 months, as shown in the Figure to the right released by the EIA last Thursday. The Elba Island plant in Georgia could come online this summer, but will only add up to 0.2 BCF/day of demand. The next significant uptick in demand will occur when the first of train at Texas' Freeport plant comes online in 4Q 2018, boosting LNG feedgas demand by 0.7 BCF/day to push total daily feedgas capacity to over 5 BCF/day and export capacity to just under that mark. Unless there are major delays, 2019 has the potential to be a landmark year for the US' burgeoning LNG industry with Elba Island and Freeport bringing the remainder of their LNG trains online, and Corpus Christi and Cameron both potentially coming online as well. By the end of 2019, it is possible that total daily demand could nearly double to 10 BCF/day. While natural gas supply/demand is currently mismatched thanks to rising production--and will likely become even more so this spring as heating demand fades and powerburn demand awaits the summer heat--this expected surge in LNG feedgas demand later this year and into 2019 will likely help to rebalance the market or even potentially skew supply/demand balance in favor of the bulls, depending on how much further production growns in the interim. For this reason, while I am a near-term natural gas bear due to strong production and seasonally mild temperatures for late March into April, my outlook turns bullish this summer ahead of this expected rise in demand infrastructure.