Energy Prospectus

It is important to remember that EIA weekly numbers are just ESTIMATES and they are often proven to be bad estimates when actual data comes out. We are just now getting April actual data and it will be adjusted a few times before it is locked in.

From TPH:

On Friday the EIA published a final gasoline demand figure of -0.7% y/y for Apr'18, a considerable step down from the initial +1.6% number based on the weekly estimates. Gasoline faced headwinds of higher prices at the pump (+14% y/y) in the month, as well as US employment growth of only +1.3%, the weakest reading so far this year. With the negative revision, YTD gasoline demand is now in the red at -0.9%.

Distillate demand, however, was revised up to an especially strong +9.6% y/y in Apr'18 from +7.1% previously. The macro backdrop for distillate was excellent, with growth in industrial production (+4% y/y), Port of Long Beach containers (+8%), truck tonnage (+10%), and Class 8 tractor truck sales (+37%). Even with softer readings recently, YTD distillate demand is still +3.1%.

US gasoline exports rose a solid +248mbpd y/y to 954mbpd in Apr'18, continuing a string of 6 months in a row of y/y growth. Shipments to all regions posted y/y gains, led by Mexico which accounted for 58% total share. Mexico has had extensive refinery downtime so far this year, with the 186mbpd Madero plant shut for multiple months and 243mbpd Salamanca and 315mbpd Tula running at lower rates due to inventory controls. Overall gasoline exports are now +29% YTD.

US distillate exports climbed +138mbpd y/y to 1,458mbpd in April. Volumes were strong to Mexico (22% share) but softened to South America (53% share). PADD 5 exports were above 100mbpd for the 2nd time this year. With the good number in April, overall distillate exports are now -2% YTD.
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Central and South America depend heavily on U.S. refined products.

Market for U.S. NGLs is growing rapidly. We have abundant supply and U.S. NGLs are still cheaper than other sources. Cheap natural gas and cheap NGLs have made the U.S. #1 in petrochemical industry.

From TPH:

Another consecutive month of record setting for US NGL production, rising +86mbpd m/m (+2%) and +626mbpd y/y (+17%) to 4.9mmbpd in Apr'18, topping the record set last month. These figures include rejected ethane. Overall NGL growth of +17% y/y outpaced both crude (+15%) and natural gas (+11%). Gross ethane production rose +421mbpd y/y (+22%) to 2.3mmbpd in April, of which 1.7mmbpd was sold into the chemical and export markets as ethane and the other 0.6mmbpd was sold into the fuel market as natural gas.

Ethane demand and prices are at multi-year highs, providing a H2'18 drag for US crackers (LYB, WLK).

Propane production rose +155mbpd y/y (+13%) to 1.4mmbpd in Apr'18. Propane production growth has accelerated considerably coming off relatively soft numbers in 2016 & '17.

The records didn't stop on the production side. EIA data released Friday showed that total US NGL exports were 1.7mmbpd in Apr'18 for a new all-time high, +239mbpd (+17%) y/y. Exports as a percentage of production are also beginning to catch back up to year-ago levels, at 39% vs. 40% in Apr'17.

Ethane exports marked another all-time high in April, coming in at 319mbpd, up +37% m/m and up a whopping +90% y/y. This is now the sixth consecutive month that exports have topped 200mbpd. Morgan's Point sent out 216mbpd, Marcus Hook's export volumes were 0 in April, and the Midwest pipelines delivered 103mbpd into Canada.

China didn't take any US ethane, but this could change in the near future with reports of 10 new Chinese crackers in the works to be supplied with US ethane.

Propane exports were 939mbpd in April, down from 951mbpd in Mar'18 but up +5% y/y. This reverses four consecutive months of y/y declines, though pricing remains higher than year-ago levels (+26% in April).

Due to strong exports and the ongoing ramp of XOM's new Baytown cracker, ethane prices hit 35c/gal last week, up from 25c/gal a year ago and the highest level since early 2014.

Baytown alone will add another ~90mbpd of ethane demand, a +6% increase from current levels, and the Indorama project in Q3'18 should add another +2%. The y/y delta in ethane prices is weighing on US cracking margins by -4c/lb, which of course also face spot ethylene prices that are at just 14c/lb, down from 24c/lb a year ago. Putting it all together, it's no surprise to see spot ethane cracking margins easily setting new 5y lows. It seems likely that US ethylene will remain weak for the rest of the year, as new derivative capacity from DWDP and Sasol will only chew up about 1/3 of the new ethylene capacity from XOM and Indorama. However, new derivative capacity along with new ethylene export capacity will likely change the story in 2019. Equity performance for the group was down for the 3rd week in a row at -1.4% vs S&P at -1.3%.