September 7, 2017

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Let's Play 2: EIA Projected To Announce Bearish Natural Gas And Crude Oil Inventory Builds Today In Busy Thursday For The Agency; Gas Demand To Tumble Today As Temperatures Cool With Bearish +13 BCF/Day Daily Storage Injection, Even As Feedgas Demand To Sabine Pass Finally Rebounds

6:00 AM EDT, Thursday, September 7, 2017
Crude oil continued its winning ways on Wednesday, rising 50 cents or 1% to settle at $49.16/barrel, a new 4-week high as refineries shut down following Hurricane Harvey begin to re-open. Natural gas reversed some of Tuesday's losses as volatile, but largely rangebound trading continues with the commodity rising 3 cents or 0.9% to close right at $3.00/MMBTU. Despite the rebound, the commodity is likely to remain under pressure near-term as cooler temperatures, potential long-lasting power outages beginning this weekend in association with Hurricane Irma impact Southeast demand, continued weak LNG feedgas demand, and rising volumes out of the Marcellus Shale on the Rover Pipeline will all continue to weigh. Nonetheless, my Oil & Natural Gas Portfolio climbed to another 2017 high on Wednesday, rising 1.0% on the day to boost gains since May 1 to 15.2%. The portfolio is also up 5.8% over the last 30 days, which I feel is something of an accomplishment as the two commodities that form its foundation haven't done much of anything during this time. Thank you to all of those who have subscribed to receive access to my Portfolio Page--including the 8 that have signed up this week alone. Your support keeps the site going. For those interested in subscribing, please click HERE to learn more.

The EIA will release its weekly Petroleum Status Report for August 26-September 1 this morning at 11:00 AM EDT, delayed 1 day because of the Labor Day Holiday. This report will reflect the maximum impact of Hurricane Harvey on oil infrastructure. After the market close yesterday, the American Petroleum Institute (API) announced that it was forecasting a +2.8 MMbbl crude oil storage build for the week, which would be over 6 MMbbls bearish versus the 5-year average -3.5 MMbbl drawdown. In fact, should such a build verify, it would be the fourth largest storage injection for the August 26-September 1 period in the full 33 year period for which EIA data is available as shown in the Figure to the right, with the largest being 1995's +7.7 MMbbl build. It would be the first weekly storage injection of any kind in the last 9 weeks and the largest in 13 weeks dating back to June 2. Should it verify, crude oil inventories would rises back to 460.6 MMbbls while the storage surplus versus the 5-year average would climb to +80.8 MMbbls. Inventories would still be down -22.2 MMbbls year-over-year.

However, the build should not come as a surprise as, thanks to Harvey-induced refinery shutdowns, the primary source of crude oil demand was sharply curtailed. On the flipside, this means that gasoline and distillate demand were reduced as well. As a result, the API is forecasting a modestly bullish -2.5 MMbbl gasoline drawdown (5-year average: -1.7 MMbbl) and a -0.6 MMbbl distillate draw (5-year average +1.3 MMbbls). As a result, half of crude oil's projected bearishness is countered. As a result, the projected drawdown in Total Petroleum Inventories--crude oil plus gasoline plus distillates--is -0.4 MMbbls, or 3.5 MMbbls bearish versus the 5-year average +3.8 MMbbls.

Overall, I consider today's report--should the official numbers come in line with the API's forecast--to be neutral for crude oil. More so, I consider today's report almost as a 1-week aside, unrelated to the ongoing oil supply/demand narrative, as influenced as it will be by Harvey. Given the recent contraction in storage levels to multi-year lows, I remain bullish long-term on crude oil and have invested accordingly. However, I have no interest in trying to guess the final impact--or lack thereof--of Hurricane Harvey on the broader energy sector and will wait for the dust to settle from this week's report before I consider adding to my position.

Check back at 11:00 AM EDT on my Crude Oil Page HERE for the EIA's official numbers.

The EIA will be earning its keep today as the agency will also be releasing its regularly scheduled Natural Gas Storage Report, also for the week of August 26-September 1, at 10:30 AM EDT this morning. I am projecting a +66 BCF natural gas storage injection for the week. Such a build would be slightly bearish versus the 5-year average +58 BCF injection, but a modestly bearish 28 BCF larger than last year's +38 BCF injection. A +66 BCF build would be the largest injection since June 30 in a summer that has otherwise featured consistently smaller-than-usual builds, including several that were 5-year lows. In fact, it would be only the second time in the last 13 weeks that the weekly injection was larger than the 5-year average. The larger injection for this week was due to the combination of cooler temperatures across the eastern half of the nation, a feature compounded by Hurricane Harvey which brought rain-cooled record low-maximum temperatures to parts of eastern and central Texas on multiple days. The mean population-weighted nationwide temperature averaged 73.3F this week down 3.5F week-over-week and 1.4F cooler than normal with only a late-season heatwave across the West Coast preventing an even larger anomaly. As a result of the cooldown, I calculate that natural gas powerburn averaged just 29.4 BCF/day last week, down more than 4 BCF/day from 33.8 BCF/day the week of August 19-25. Additionally, my projection has risen steadily since late last week when it was +61 BCF due to LNG feedgas demand to Sabine Pass that dropped over 1 BCF/day at the end of the week to just 1.1 BCF/day and exports to Mexico that likely fell at least 0.2-0.4 BCF/day due to Hurricane Harvey. Should a +66 BCF natural gas injection verify, it would be the 4th smallest in the last 5 years for the August 26-September 1 period, behind +28 BCF in 2012, +38 BCF in 2016, and +60 BCF in 2013, as shown in the Figure to the right. A +66 BCF injection would boost total inventories to 3221 BCF while the storage surplus versus the 5-year average would inch higher from +8 BCF to +16 BCF.

Overall, I consider today's report to be modestly bearish for natural gas, both in itself and as the first in what will likely be a string of neutral to bearish injections. While the projection contains above-average uncertainty due to the unclear impacts of Hurricane Harvey, a reported injection of over +70 BCF would be unequivocally bearish and indicative of a loosening market, either temporarily due to Harvey or longer term due to weak LNG exports or the late-week start of flows on the Rover pipeline. An injection of less than +60 BCF, on the other hand, would be unequivocally bullish versus expectations and indicative of a more blunted response to Harvey. An injection between +60 BCF and +70 BCF would be neutral. Overall, I plan to sit this report out. I remain long natural gas, but have become decreasingly bullish on the commodity due to a suspected loosening of the market between weak LNG exports and increase flows out of the Marcellus on the Rover pipeline.

Check back at 10:30 AM EDT for the official EIA storage injection 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.

Natural gas demand will continue to fall today as temperatures across both coasts cool. Highs from Washington, DC to New York City will only be in the mid-70s, 5F-10F cooler than normal while readings across much of the Midwest will remain in the 60s from Minneapolis to Chicago to Detroit, 10F-15F cooler than normal. The West will continue to cool as well with much of California's Central Valley seeing below-average readings today, including mid-80s in Sacramento and Fresno, while Portland and Seattle will cool back to near-average readings in the upper 70s. There is little new to discuss with Hurricane Irma. After devastating multiple islands in the northern Lesser Antilles Wednesday, the storm remains an exceptionally powerful Category 5 storm with winds of 185 mph as of 11pm Wednesday night. The storm will probably weaken slowly today as it tracks west-northwestward north of Hispaniola towards the Bahamas. The storm will likely deliver a devastating strike to these islands late Friday and Saturday before turning its eyes on the US. Recent forecasts have shifted eastward with the storm now most likely to graze the eastern coast of Florida before making landfall in North or South Carolina, probably as a Category 2 or 3 storm, although a Florida landfall still cannot be ruled out by any stretch. Irma will likely cause extensive power outages along its path that will negatively impact natural gas demand this weekend. See the NHC website HERE for frequent updates.

Overall, the forecast mean population-weighted nationwide temperature today will drop 2.4F day-over-day to 69.0F, 4.1F cooler than normal. Total Degree Days will drop to a mere 6.9 TDDs today, 3.1 TDDs fewer than normal and the 2nd fewest in the last 37 years. Click HERE for more on today's temperature outlook. Further hurting natural gas supply/demand, pipeline volumes on Rover will rise to a new high of 0.7 BCF today, 21.5% of capacity. Click HERE for more daily data from this all-important new takeaway capacity from the booming Marcellus Shale. I also added a new Rover Pipeline box on the Summary Dashboard on the left column on the site's homepage where you can view daily pipeline statistics. Based on this temperature outlook and early cycle pipeline data--including Rover and LNG feedgas--I am projecting a +13 BCF/day daily storage injection today, an ugly 4 BCF bearish versus the 5-year average +9 BCF/day injection. Click HERE for more on today's daily storage projection and intraday natural gas inventories.

There is a small piece of good news for natural gas bulls today: LNG feedgas to Sabine Pass has finally turned higher after days in the dump. Based on early cycle pipeline data, feedgas demand today will reach 1.1 BCF/day, up more than 5-fold from yesterday. This is shown in the Figure to the right. Such a rebound is consistent with a return to service of an entire Train (1 of 3), although it is unclear whether it was Train 3 that was shut down for maintenance before Harvey's nearby landfall, or one of the other trains or parts of trains that were taken offline since. What we do know is that the LNG Tanker Rioja Knutsen docked in port yesterday--the first in over a week--which should take pressure off the facilities overloaded storage tanks and allow feedgas deliveries to return to near 2 BCF/day over the next few days, or higher if Train 3 has indeed returned to service. However, it won't be enough to save the current storage week, which looks to see just 3.7 BCF of total LNG feedgas demand, the lowest weekly tally in nearly a year. It is this exceptionally weak demand that has driven projected injections for the current week steadily higher, now at a bearish +74 BCF for September 2-8. Click HERE for more on LNG feedgas demand and LNG tanker positions.