March 15, 2017

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EIA Forecast To Announce Rare, Bullish Crude Oil Storage Withdrawal In Today's Petroleum Report As Oil Looks To Halt 7-Day Losing Streak; Natural Gas Storage Surplus To Drop Under +300 BCF Today, Down 100 BCF In Under A Week As Demand Surges

6:00 AM EDT, Wednesday, March 15, 2017
After rising for eight of the last nine days, natural gas took a breather on Tuesday as the commodity pulled back 11 cents or 3.5% to settle at $2.94/MMBTU. The pullback was likely driven by a combination of profit-taking as well as an extended outlook that trended slightly milder, even as demand is poised to reach one of the highest daily levels ever recorded in March today. Crude oil, meanwhile, continues to trip over its own feet, falling 68 cents or 1.4% to close at $47.72/barrel. It was the 7th straight loss and another 4-month low. Since reaching $54.45/barrel on February 23, oil is off 12.6% as three consecutive weeks of record high inventory levels have finally sapped bullish appetite for the commodity. But there is hope...

The EIA will release its weekly Petroleum Report this morning at 10:30 AM EDT for the week of March 4-10, detailing crude oil, gasoline, and distillate inventories as well as demand, imports, and the closely watched domestic production. On Tuesday afternoon, the American Petroleum Institute (API) announced that it was forecasting a strong 530,000 barrel storage withdrawal, more than 4 MMbbls bullish versus the 5-year average +3.6 MMbbl storage build. Storage withdrawals are rare during March which is the height of the storage injection season ahead of the summer driving season and as a result there have only been 5 weekly withdrawals for the March 4-10 timeframe in the 31 years for which EIA data is available. Not only would a -0.53 MMbbl drawdown be the most bullish in the last 5 years, as shown in the Figure to the right, it would also be the sixth most bullish build in the last 31 years. It would be the first weekly withdrawal for March 4-10 since 2003, 14 years ago. Should a -0.53 MMbbl draw verify, inventories would fall from record highs to 527.9 MMbbls while the storage surplus versus the 5-year average would fall more steeply to +141.8 MMbbls. Including the API projection, weekly storage changes will have averaged 1.62 MMbbls tight versus the 5-year average over the past month, despite inventories reaching new highs on multiple occasions. At this rate, inventories could drop to as low as 493 MMbbls by August, which would result in the first year-over-year storage deficit since 2014.

To add to the bullishness, the API also announced that it was forecasting a -3.9 MMbbl gasoline withdrawal (5 year average: -2.4 MMbbls) and a -4.1 MMbbl distillate withdrawal (5-year average: -1.2 MMbbls). As a result, the combined Total Petroleum Inventories (crude oil + gasoline + distillates) would decline by -8.5 MMbbls, more than 8.3 MMbbls bullish versus the 5-year average +0.2 MMbbl build. At this rate, the Total Petroleum Inventories Surplus versus the 5-year average would fall from +190 MMbbls to +181.3 MMbbls, the lowest that it has been since January 20, 2017, as shown in the Figure to the right.

As a crude oil short from the recent highs near $54/barrel, the API's double whammy bullish forecast of oil and refined product drawdowns is concerning. At the same time, a single storage withdrawal does not a trend make. Is this the beginning of OPEC's mechanizations finally coming to fruition or is it a one week respite with record storage levels to resume next week? Obviously, the answer is unclear at this time. Given that I am short the hand grenade that is the 3x leverage ETF UWT and am up more than 25% on the position, I feel that discretion is the better part of valor and will have a low threshold to reduce or cover my position entirely tomorrow ahead of the report or should it verify. While personally I feel that there still needs to a be a final washout of the many weak hands in the long trade that could take prices to $45/barrel, I trade based on data and do not want to be caught short should the fundamentals (finally) begin to improve.

Check back on my Crude Oil Inventories Page at 10:30 AM EDT for the official EIA numbers and updated projections.

Natural gas demand will rise to a March high today as temperatures drop in the cold wake of the mighty Nor'easter that pummeled interior New England (but largely spared coastal cities). An exceptional pool of arctic air will be centered on the Mid-Atlantic today, as the map to the right shows. High temperatures along the Gulf Coast of Florida today will only be in the lower 50s and highs will only reach the lower 40s from Atlanta to Charlotte to Raleigh, more than 20F below average. Further north, with a snowpack in place, none of the major demand centers from Washington, DC to Boston will reach the freezing mark today, also around 20F colder than average. Across interior New England and the Ohio Valley, highs will only be in the teens to lower 20s with lake effect snow, a pattern much more similar to January than one week from the first day of spring. High temperatures across the West will continue to warm with a large area of 10F warmer-than-average anomalies across largely unpopulated real estate from interior California to Nevada, Utah, Colorado and New Mexico. And where there are population centers--southern California and Arizona--such anomalies will actually be prompting some early-season cooling demand with Phoenix and Los Angeles likely to reach the low 90s and 80s, respectively. Nonetheless, thanks to the arctic beatdown across the East, the forecast population-weighted nationwide temperature today will drop more than 3F day-over-day to 40.5F today, a remarkable 8.6F colder than average. It would be the largest cooler-than-average daily anomaly during the winter of 2016-2017. Based on this outlook and early-cycle pipeline data, I am projecting a -30 BCF daily withdrawal, 4 BCF larger than yesterday and a massive 27 BCF bullish versus the 5-year average. By the end of the day today, the storage surplus versus the 5-year average will have dropped under +300 BCF, down more than 100 BCF in under a week. See more on today's daily withdrawal and intraday storage data HERE.

In other news, one week after setting a 4-month low and subsequently rebounding, LNG feedgas delivery to Sabine Pass will set a new record this morning at 2.37 BCF/day. For analysis on the sharp decline in deliveries and subsequent rebound, see my piece on SeekingAlpha HERE.