Opening Prices:
WTI is up 42c to $53.71/Bbl, and Brent is up 21c to $59.33/Bbl.
Natural gas is down 1.1c to $1.944/MMBtu.
Closing Prices:
WTI prompt month (MAR 20) was up $0.49 on the day, to settle at $53.78/Bbl.
NG prompt month (MAR 20) was down $0.035 on the day, to settle at $1.920/MMBtu.
Oil & Gas Prices - Feb 20
Oil & Gas Prices - Feb 20
Last edited by dan_s on Thu Feb 20, 2020 5:35 pm, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Feb 20
"...everything but the impact from the coronavirus is starting to favor the bulls."
The Phil Flynn Energy Report: February 20, 2020
By Phil Flynn (Feb 20, 2020 10:25AM ET)
Short-Term Demand Destruction
The crude-oil market is still coming back from the coronavirus sell-off as Libyan exports continue to zap global supply, and Venezuelan exports will stop moving as the U.S. hits Russia’s Rosneft trading unit with sanctions. Even a significant 4.36 million barrel increase in crude supply as reported by the American Petroleum Institute (API), could not stop the market in part because the trade was concerned about a more significant than expected 2.67 million barrel drop in gasoline supply as well as a 2.63 million barrel drop in distillates. Still today, we may see headwinds from reports that Mexico is getting ready to but on the “big hedge” trying to lock in these prices. Maybe they should wait because everything but the impact from the coronavirus is starting to favor the bulls.
Despite people throwing out loose terms like a "glut in supply,” the reality is that global oil supply is still tight despite the fall out from the coronavirus. U.S. supply last week was 2% below the five-year average. Even if the Energy Information Administration (EIA) today in its weekly report matches the API, we are still going to see supply below average for this time of year. Shale growth is disappointing. The EIA lowered shale growth to only 18,000 barrels per day (bpd) in March.
It is not just the U.S.. Saudi Arabia’s crude stockpiles fell by 11.8 million barrels in December, and EU stocks are also below average, despite the demand destruction from coronavirus. The loss of Libyan oil exports is keeping us in balance. Chinese stimulus is also bullish down the road and we will see an oil demand surge when the virus starts to decrease. Hopefully that will be sooner than later.
Reuters John Kemp reports that Brent’s six-month calendar spread has strengthened to $1.10 backwardation as traders anticipate a severe but short-lived downturn in consumption owing to coronavirus.
The “big hedge” could slow oil's sharp rise. Bloomberg News reports that, “Mexico plans to lock in prices for the country’s crude output for next year, continuing the world’s most substantial sovereign oil hedge, Finance Minister Arturo Herrera said. Herrera said in an interview on Monday that “of course” the oil hedge will continue, but that Mexico needs to keep details of the trade private to prevent the market from front-running the transaction. The Finance Ministry, or Hacienda, a hedge is considered one of Wall Street’s most secretive. Historically, the ministry buys put options -- contracts that give it the right to sell crude at a predetermined future price -- from a small group of investment banks and oil firms.”
We said that oil was probably bottoming last week, assuming there were no bad headlines. Seasonally, gasoline demand is on track for an above-average year as a strong U.S. economy and relatively tight supply, not to mention refining issues, is giving us support.
The Phil Flynn Energy Report: February 20, 2020
By Phil Flynn (Feb 20, 2020 10:25AM ET)
Short-Term Demand Destruction
The crude-oil market is still coming back from the coronavirus sell-off as Libyan exports continue to zap global supply, and Venezuelan exports will stop moving as the U.S. hits Russia’s Rosneft trading unit with sanctions. Even a significant 4.36 million barrel increase in crude supply as reported by the American Petroleum Institute (API), could not stop the market in part because the trade was concerned about a more significant than expected 2.67 million barrel drop in gasoline supply as well as a 2.63 million barrel drop in distillates. Still today, we may see headwinds from reports that Mexico is getting ready to but on the “big hedge” trying to lock in these prices. Maybe they should wait because everything but the impact from the coronavirus is starting to favor the bulls.
Despite people throwing out loose terms like a "glut in supply,” the reality is that global oil supply is still tight despite the fall out from the coronavirus. U.S. supply last week was 2% below the five-year average. Even if the Energy Information Administration (EIA) today in its weekly report matches the API, we are still going to see supply below average for this time of year. Shale growth is disappointing. The EIA lowered shale growth to only 18,000 barrels per day (bpd) in March.
It is not just the U.S.. Saudi Arabia’s crude stockpiles fell by 11.8 million barrels in December, and EU stocks are also below average, despite the demand destruction from coronavirus. The loss of Libyan oil exports is keeping us in balance. Chinese stimulus is also bullish down the road and we will see an oil demand surge when the virus starts to decrease. Hopefully that will be sooner than later.
Reuters John Kemp reports that Brent’s six-month calendar spread has strengthened to $1.10 backwardation as traders anticipate a severe but short-lived downturn in consumption owing to coronavirus.
The “big hedge” could slow oil's sharp rise. Bloomberg News reports that, “Mexico plans to lock in prices for the country’s crude output for next year, continuing the world’s most substantial sovereign oil hedge, Finance Minister Arturo Herrera said. Herrera said in an interview on Monday that “of course” the oil hedge will continue, but that Mexico needs to keep details of the trade private to prevent the market from front-running the transaction. The Finance Ministry, or Hacienda, a hedge is considered one of Wall Street’s most secretive. Historically, the ministry buys put options -- contracts that give it the right to sell crude at a predetermined future price -- from a small group of investment banks and oil firms.”
We said that oil was probably bottoming last week, assuming there were no bad headlines. Seasonally, gasoline demand is on track for an above-average year as a strong U.S. economy and relatively tight supply, not to mention refining issues, is giving us support.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Feb 20
The Disconnect Between Oil Stocks and Oil Prices Continues
02/ 19/ 2020
By Goehring & Rozencwajg Team
“The extreme bearishness towards energy related equities reminds us of the precious metals markets back in the late 1990s.”
After extensive weakness in both Q2 and Q3, natural resources enjoyed a modest rebound in Q4 2019. For example, after pulling back 35% from the April highs, oil rebounded 12% in Q4. The rally was driven by a combination of reduced trade war rhetoric, looser US monetary policy, and an increased understanding that US shale oil production growth will slow in 2020.
Continuing a trend of the last several years, exploration and production stocks lagged the oil prices. For example, the S&P E&P Index (XOP ETF) rose only 6.4% for the quarter. A bright spot among energy related equities was the oilfield service sector. After being pummeled on news of continued weak North American upstream capital spending trends, oil service stocks (as measured by the OIH ETF) rebounded 15% during the quarter, outpacing the oil price itself. For the year, energy-related stocks performed terribly. While the S&P 500 and WTI each rose over 30%, E&P and oil service stocks fell by 9% and 4%, respectively.
With the global investment community now gripped by environmental and sustainability (ESG) concerns, capital continues to pour out of investments perceived to be most impacted. Companies that produce and service the global oil and gas industry are being liquidated as a result. The impact of this liquidation is clear when you compare the performance of oil and gas stocks with other commodity producers. For example, since commodity prices bottomed in Q1 of 2016, oil prices have rallied 125% while the average E&P stock advanced only 12%. By comparison, gold has only rallied 45% from its bottom while the average gold stock (as measured by the GDX ETF) advanced 135%. Similarly, copper rallied 45% from its 2016 low while the average copper stock (as measured by the COPX ETF) advanced by 130%.
The extreme bearishness towards energy related equities reminds us of the precious metals markets back in the late 1990s. Today, energy bears believe that the industry is faced with both “peak demand” and potential financial liabilities stemming from climate change damages if and when they occur. Back in the late 1990s, investors were convinced global central banks would continue selling the remainder of their gold reserves--a process that had started ten years earlier and had accelerated throughout the decade. With announcements that the newly formed Euro would not require any gold backing and the UK would sell its remaining gold, it seemed as though the bears would prevail. The final blow occurred when the Swiss announced they would abandon the Franc’s gold backing and liquidate half of their substantial reserves. By 1999 investors were convinced that European Central Banks would sell all their remaining gold--a process that would take at least 25 years.
But something strange happened to the bearish thesis that was accepted unanimously in 1999: it never happened. Instead of selling persistently for the next 25 years, European central banks slowly wound down their liquidation and by 2009 central banks had turned into significant gold buyers. We covered this in our introductory essay “The Gold Bull Market is Here” in our Q2 2019 letter. In the late 1990s, for the few contrarian investors who capitalized on the opportunity, the rewards were huge. Between 1999 and 2011, gold prices rose over seven-fold while gold equities rose twelve-fold.
We believe today’s oil market is in the same position. Investors have constructed an extremely bearish thesis resulting in massive liquidation. This liquidation in turn has created incredible value in the related equites. If we are right, this bearish thesis will fail to materialize just like with gold in the late 1990s.
Adam Rozencwajg
---------------------------------------
"Let me add that I've never seen high quality upstream companies like our Sweet 16 trade at such low multiples of earnings and operating cash flows. WTI below $50/bbl is clearly unsustainable and I think WTI below $60/bbl is unsustainable. By that, I mean with WTI under $60/bbl upstream companies will not (most cannot) spend the capital on exploration and development necessary to find and develop the new oil supplies necessary to meet the relentless increase in demand for hydrocarbon based liquid fuels." - Dan
02/ 19/ 2020
By Goehring & Rozencwajg Team
“The extreme bearishness towards energy related equities reminds us of the precious metals markets back in the late 1990s.”
After extensive weakness in both Q2 and Q3, natural resources enjoyed a modest rebound in Q4 2019. For example, after pulling back 35% from the April highs, oil rebounded 12% in Q4. The rally was driven by a combination of reduced trade war rhetoric, looser US monetary policy, and an increased understanding that US shale oil production growth will slow in 2020.
Continuing a trend of the last several years, exploration and production stocks lagged the oil prices. For example, the S&P E&P Index (XOP ETF) rose only 6.4% for the quarter. A bright spot among energy related equities was the oilfield service sector. After being pummeled on news of continued weak North American upstream capital spending trends, oil service stocks (as measured by the OIH ETF) rebounded 15% during the quarter, outpacing the oil price itself. For the year, energy-related stocks performed terribly. While the S&P 500 and WTI each rose over 30%, E&P and oil service stocks fell by 9% and 4%, respectively.
With the global investment community now gripped by environmental and sustainability (ESG) concerns, capital continues to pour out of investments perceived to be most impacted. Companies that produce and service the global oil and gas industry are being liquidated as a result. The impact of this liquidation is clear when you compare the performance of oil and gas stocks with other commodity producers. For example, since commodity prices bottomed in Q1 of 2016, oil prices have rallied 125% while the average E&P stock advanced only 12%. By comparison, gold has only rallied 45% from its bottom while the average gold stock (as measured by the GDX ETF) advanced 135%. Similarly, copper rallied 45% from its 2016 low while the average copper stock (as measured by the COPX ETF) advanced by 130%.
The extreme bearishness towards energy related equities reminds us of the precious metals markets back in the late 1990s. Today, energy bears believe that the industry is faced with both “peak demand” and potential financial liabilities stemming from climate change damages if and when they occur. Back in the late 1990s, investors were convinced global central banks would continue selling the remainder of their gold reserves--a process that had started ten years earlier and had accelerated throughout the decade. With announcements that the newly formed Euro would not require any gold backing and the UK would sell its remaining gold, it seemed as though the bears would prevail. The final blow occurred when the Swiss announced they would abandon the Franc’s gold backing and liquidate half of their substantial reserves. By 1999 investors were convinced that European Central Banks would sell all their remaining gold--a process that would take at least 25 years.
But something strange happened to the bearish thesis that was accepted unanimously in 1999: it never happened. Instead of selling persistently for the next 25 years, European central banks slowly wound down their liquidation and by 2009 central banks had turned into significant gold buyers. We covered this in our introductory essay “The Gold Bull Market is Here” in our Q2 2019 letter. In the late 1990s, for the few contrarian investors who capitalized on the opportunity, the rewards were huge. Between 1999 and 2011, gold prices rose over seven-fold while gold equities rose twelve-fold.
We believe today’s oil market is in the same position. Investors have constructed an extremely bearish thesis resulting in massive liquidation. This liquidation in turn has created incredible value in the related equites. If we are right, this bearish thesis will fail to materialize just like with gold in the late 1990s.
Adam Rozencwajg
---------------------------------------
"Let me add that I've never seen high quality upstream companies like our Sweet 16 trade at such low multiples of earnings and operating cash flows. WTI below $50/bbl is clearly unsustainable and I think WTI below $60/bbl is unsustainable. By that, I mean with WTI under $60/bbl upstream companies will not (most cannot) spend the capital on exploration and development necessary to find and develop the new oil supplies necessary to meet the relentless increase in demand for hydrocarbon based liquid fuels." - Dan
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group