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BMO Capital Markets - July 12

PostPosted: Fri Jul 12, 2019 11:22 am
by dan_s
Crude Oil

Tropical Strom Barry has formed and is headed toward landfall on Saturday afternoon. However, it is a slow-moving system and is expected to drop a significant and dangerous amount of rain on Louisiana, as much as 20 inches in some places. As a result of the storm, Gulf Coast oil production has been cut by 53% according to Bloomberg, or around one million barrels per day. Flooding would be the main risk to refinery operations along the coast and that is looking like it will be a problem. That picture will become clearer over the next day or two, but refinery issues will definitely put a dent in the recent climb in refinery runs. Time spreads have been bid with August futures in WTI rallying versus deferred futures such as Dec20 and Dec21. The Aug19/Dec20 spread has gone from nearly flat back in mid-June to something closer to $3.75 currently. News on the path and severity of this storm will likely influence oil and products, including time spreads, for the next few days so expect a bit of a wild ride. Finally, OPEC is estimating that in 2020 it will be pumping around 560kbpd more than demand will require as shale continues to expand. This should pressure light barrels versus heavy if true.

Natural Gas

Dry production was revised higher for yday to 86.81, still 400 mmcf/d of the 30D avg, while today's scrapes came in at 86.14 bcf. Losses are concentrated in the Southeast today as shut-ins in the GOM dropped volumes bby 1.45 bcf/d relative to the 30D avg. CAD imports remain strong, but have lost 250 mmcf d/d on reduced volumes via NWPL and Iroquois. LNG feedgas demand was revised lower for yday and comes in at 5.5 bcf for today on drops at Cameron and Sabine Pass. In total we see a demand drop of 700-800 mmcf/d due to tropical Storm Barry's impacts on the facility. This is ~50% of the supply drop so net/net this storm in the short term is bullish but we will wait to see how long these respective S&D impacts last. Mexican exports are flat d/d at 5.56 bcf. The forecast for the next seven days shows Total Demand at 85.63, which is up 1.94 bcf/d year on year and up 1.71 bcf/d week on week. Total supply is forecast at 92.04, which is up 4.48 bcf/d year on year.