Overall commercial oil inventories drew 10.6 million barrels last week led by a 9.5 million barrel product stock decline, two thirds of which was in the three major light products. The stock deficit to last year widened to 150 million barrels (11.3%) while adjusted demand was up 3.7%, or 730 MB/D, over the last four weeks. Cushing crude stocks drew 1.1 million barrels last week and we are expecting a relatively flat inventory profile for this week’s EIA data. Demand weakens in this week’s report, but the major light products still manage to show a small draw. Overall crude stocks slightly build as imports increase to 8.20 MMB/D.

Platts Analytics continues to favor higher natural gas prices this summer. In addition, the price forecast for the 2018/19 heating season was modestly raised in response to the increase in US inventory deficits stemming from the colder-than-normal temperatures realized in late March and much of April. The summer/winter price spread remains fairly narrow, which stands to limit discretionary storage during the 2018 refill season.

Changes to fundamental supply/demand factors over the last month were mixed, but Platts Analytics' reasserts its bearish outlook on U.S. coal prices as domestic power sector coal demand is projected to continue falling year-over-year. However, with the arbitrage window for ILB coal reopening, we tempered our expectation of a near-term fall in the ILB PHY contract and we made slight upward revisions to NAPP and CAPP prices based on a modest increase in our CY18 coking coal export forecast.

Crude tanker markets remain weak due to chronic over-supply and continued OPEC production cuts. But a sharp escalation in vessel scrapping in 2018 and a slowdown in new orders will help absorb excess tonnage.

According to key data releases such as GDP, industrial production, and retail sales, Chinese economic growth continued at a steady pace during the first quarter, and there were no obvious weak spots. The debt-to-GDP ratio remained stable, in line with the government’s objective. In the U.S., consumer spending and residential investment were somewhat disappointing during the first quarter. But based on leading indicators, growth is expected to improve soon. Consumer inflation in major developed economies remained low in March.

Propane prices fell 1.1% week-on-week, due to expectation of lower res/com demand and the beginning of the inventory build season. Propane demand declined 30% week-on-week to just over a million barrels per day, and propane inventories were basically flat for the week ending April 13th with a small build of 40 MB. For the week ending April 20th, propane exports are expected to be robust at 950 Mb/d since the northeast Asian propane arbitrage is largely open, and the Mount Belvieu storage arb is negative for April barrels. Traders indicated strong interest from international buyers in split LPG cargos, 50/50 propane/butane, out of the USGC. Raw mix NGL production dropped to 3.9 million b/d and was largely caused by a 1.3% decline in average weekly gas production. Steam cracker margins remain bearish with only ethane in positive territory.

The decline in U.S. ethanol production continued the week ending April 13 as more plants in the Midwest began seasonal maintenance. Output fell 25 MB/D to 1,009 MB/D and is expected to fall further this week. Ethanol stocks drew 502 thousand barrels to a 25-week low 21.3 million barrels, down 1.7 million barrels from this time last year. Ethanol-blended gasoline output increased by 139 MB/D to 9,093 MB/D.

On Thursday, May 10th, the U.S. corn and oilseed markets will get their first “official” look at the USDA World Board’s 2018/’19 Marketing Year Supply and Demand expectations in the May WASDE. Some of the data is known, such as preliminary planted acres as released in the annual Prospective Plantings report at the end of March. Others, such as trend line yields, were already discussed at the USDA Outlook Forum held at the end of February. While acreage will not truly be known until the end of June with the annual Acreage report, and even then the number of planted acres will be subject to change later in the Marketing Year, and yields will not become official until planting dates are confirmed and then become subject to National Agricultural Statistic Service’s test plot data and satellite observations in mid and late summer, the USDA must “start somewhere”.

AECO cash prices are exhibiting increased volatility as overlapping maintenances are well underway on TransCanada’s NGTL system, which are largely limiting how much Canadian supply can exit Alberta. Basis pricing at the SoCal Citygate has strengthened significantly in the past month as the market is pricing in several ongoing pipeline restrictions.

Reduced flexibility in the system is even making April a potentially bullish period for prices. With storage at record lows coming out of winter and despite Russian exports at record highs, the market has become decidedly uneasy about where the next cubic meter will emerge. Hence the prime example of last week, with reports of a longer duration for Norwegian outages (20mcm/d lower available capacity for balance of summer) driving Balance of Summer prices to new highs, before retreating only slightly after reports of its cancellation. Nonetheless last week's rally was justified, and demonstrates just how finely balanced European markets remain as we move further into summer. The issue is not demand per se, which is cascading for seasonal reasons and not really showing much underlying growth potential despite stronger macroeconomic indicators. The issue is risk and how to manage potential demand next winter in a region facing competitive forces for supply during peak periods of use. Record needs for storage injections should keep it that way, as Europe scrambles to refill its ample storage capacity with more and more imports as it loses or has lost domestic flexibility in the hands of Dutch and UK producers.

Yamal has provided much needed assistance to an LNG-starved Europe this winter. Previously, we’ve highlighted how by decree of Mother Nature, volumes from the three train Yamal project will be forced into NW Europe seasonally when the North Sea Route to Asia is frozen over. This was always seen as problematic because Asian prices are generally at their highest during winter time. However, increasingly, Europe is willing to compete directly with Asia for supplies from Yamal.

The strong precipitation observed in Spain in the past couple of months has lifted the hydro stocks to 61.2% of nominal capacity, exceeding the average of the past 10 years in Week 15. This surge is even more impressive considering that water levels were setting multi-year minimums every week through mid-February. The May power contract, trading around €48.6/MWh, implies a major improvement in the month-ahead CSS and CDS. Hydro output is important for price formation in Spain at this time of the year, as each additional GW of hydro output reduces the May price by about €4/MWh in our model.

While the seaborne coal market was generally range-bound last week, prices moved up slightly compared to the end of last week, particularly deferred prices. We remain committed to the view that seaborne coal prices will fall off significantly over 2018, although it is likely the market is looking for clear signs that fundamentals are loosening before prices decline. The announcement that China’s total coal imports increased by 20% year-over-year in March no-doubt fed into the market’s perception that short-term tightness has not yet been dealt with, particularly after such strong weather-related demand over the 2017/2018 Northern Hemisphere winter. However, with China adding new import restrictions this week on top of continued non-fossil power generation growth the market would do well to eye Chinese import declines in 2Q18, becoming more severe over 3Q18.

With the mid-April issuance of 4Q 2017 RECs in the NEPOOL tracking system, the trading/true-up period for calendar year 2017 has begun. Massachusetts Renewable Portfolio Standard (RPS) obligations will be determined during this time, including SREC carve-out obligations. These take into account total RPS retail electricity sales reported by each supplier. The EIA reported preliminary retail sales data for MA in 2017 show a significant year-over-year increase; however, the sales data appear questionable based on comparisons with ISO New England MA load data. Platts Analytics expects total RPS-affected retail sales will be more in line with loads, showing negative year-over-year growth. For the SREC-I market, lower solar production in 2017 and increased requirements next year point to tighter balances.

Runs moved lower by 25 MB/D, and crude imports rose sharply such that crude stocks built 4.27 MMBbls. Finished product stocks were fractionally higher due to a large kero draw being offset by gasoline, jet, and fuel oil builds. The pace of seasonal stock builds in finished products has slowed, along with the seasonal decline in aggregate product demand. The implied refining margin again moved lower as cracks weakened. Implied marketing margins have been easing too. The overall downstream value chain has clearly been softer. Kerosene demand surprised to the upside by rising 74 MB/D to 244 MB/D. The stock change shifted from a build of 14 MB/D to an end-of-season draw of 96 MB/D.

The reflation trade has been back most recently, with financial stresses easing a bit. Commodities had a positive week, with industrial metals doing the best, followed by energy. Against that backdrop, the U.S. dollar was stronger by 0.6%. Implied inflation has been rising again. VIX was modestly lower and remained under 20, while the S&P 500 gained about 0.5%. Many of the other credit metrics had mixed performances. The St. Louis financial stress indicator fell back on the week, while overall stress levels remain low.

U.S. ethanol prices were boosted last week by stocks hitting a 21-week low, and production declining as the maintenance season began. RINs rebounded following their recent decline. Ethanol production in Brazil’s South-Central region in 2017/2018 was up 1.7% from the prior season. The U.K.’s biofuels blending mandate increased to 7.25% for the current compliance year, which began on April 15. U.S. biodiesel prices have rebounded from an eight-month low.

The May NYMEX contract has averaged ~$2.73/MMBtu this week, up a modest ~1.0% relative to last week’s average of $2.69/MMBtu. Yet, Thursday saw May prices pulled below $2.70/MMBtu —a counter intuitive move given the bullish EIA storage surprise. The bearish price move (which was felt across the curve) was driven in part by market participant's discounting the lost demand from the Freeport LNG Train 1 startup delay, which was announced Wednesday. Cash prices have been a bit more supported, with prices averaging ~$2.79/MMBtu over the past seven days, a period which included a high of $2.85/MMBtu reached on April 19.

Our monthly snapshot of major country Asian oil demand growth remained strong at 1,013 MB/D, a modest acceleration from the 972 MB/D seen last month. Performance for this month, however, came in under our growth expectation of about 1.2 MMB/D. Looking forward, demand growth in the May snapshot is expected to ease to 675 MB/D, and then slow further to 600 MB/D in the June snapshot. Even so, major country demand growth for 2018 is slated at 790 MB/D vs. 890 MB/D seen in 2017, while total Asian demand growth in 2018 is expected to be 990 MB/D vs. 1,110 MB/D seen in 2017.

Global equities gained 0.3% on the week, while the U.S. outperformed, higher by 0.6%. Among the domestic tracking indices, energy was again the best performed and gained 2.7%, while industrials moved higher by 2.2%. Consumer staples were particularly weak, down 4%. Internationally, Europe was strong and moved higher by 1.5%, while China and emerging Asia fell.

Actions taken to date by the Canadian and Alberta governments to improve the investment climate surrounding the Trans Mountain expansion have failed to placate Kinder Morgan which commented on Wednesday that the project may be untenable for a private party to undertake. Adding to the woes of Western Canadian oil producers is the expected strike by two unions representing workers for CP rail which would amplify transportation constraints out of the basin.