Macro View

[dan_s]

Comments below from Roth Capital's energy analyst, John White. Keep an eye on natural gas. I think demand for gas is going to soar in July and wipe out a lot of the excess storage. - Dan

Crude Oil Macro:

Chinese oil demand: On 6/8/2016 Reuters reported China's crude oil imports rose 38.7% in May
from a year ago, the biggest jump in more than six years, to 7.6 million b/d, as the nation's
independent refiners scooped up volumes and stockpiling maintained momentum.
"The year-on-year growth is massive at 2.125 million b/d from a very low May 2015 base driven by
demand from teapots and crude stockpiling," said Virendra Chauhan, an analyst at consultancy
Energy Aspects. Independent refineries, nicknamed "teapots", have become a major contributor
to China's total crude imports after being granted import licenses last year. Still, analysts expect
China's crude imports to stay at a high level in the second half, due to the renewed demand from
teapots and the startup of new infrastructure.

Crude Oil Prices: Oil prices jumped to their highest level in eight months on 6/8/2016, rising for a
third consecutive session on supply disruptions in Nigeria and strong Chinese demand data. There
was also a larger-than-expected drop in U.S. crude inventories on Tuesday and a weaker U.S.
dollar, which hit a five-week trough against a basket of currencies on Wednesday, also boosted
crude prices. Reuters reported U.S. crude futures were up $0.65 to $51.01/bbl, after reaching
$51.12/bbl, their highest since last July.

Natural Gas: Prices have surprised to the upside recently, with gas closing last Friday at $2.56/
MMBtu, up 4.9% for the week and up 18.5% over the last 30 days. Supply has been tightening;
according to the EIA natural gas production was 79.1 Bcf/d in March 2016, a 1.0 Bcf/d decline
from its record high in February. Average daily production in Texas, the largest natural gasproducing
state, declined, and Marcellus Shale production declined in Pennsylvania, Ohio, and
West Virginia. And the outlook for demand looks good, with the EIA's forecast of U.S. total natural
gas consumption averaging 76.6 Bcf/d in 2016 and 77.8 Bcf/d in 2017, compared with 75.3 Bcf/d
in 2015. In 2016, increases in total natural gas consumption are mainly attributable to increases
in electric power sector use.

The EIA reported a build of 65 Bcf, below the forecast build of 77 Bcf and below last year's build of
111 Bcf. U.S. working gas in storage is now 2,972 Bcf, which is 32% above the five-year average
of 2,250 Bcf, and 28.5% above last year's level of 2,312 Bcf.