Oil & Gas Prices - Oct 25

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dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Oil & Gas Prices - Oct 25

Post by dan_s »

Opening Prices:
> WTI is up $1.07 to $84.83/Bbl, and Brent is up 75c to $86.28/Bbl.
> Natural gas is up 29.8c to $5.578/MMBtu.

AEGIS Notes
Oil


For the strip for oil: The trend is UP. Buyers will remain in control above $82.50.

Brent crude rallied above $86/Bbl as Saudi Arabia urged caution in boosting supply (Bloomberg)
> The Saudi Energy Minister Prince Abdulaziz bin Salman told Bloomberg TV on the weekend that producers shouldn’t take the rise in prices for granted
> WTI’s Dec21-Dec22 spread widened to $12 on Monday, while Brent’s edged closer to $10, both the strongest since 2013
> WTI’s discount to Brent moved to the smallest since July at less than $2 on Monday
> “WTI is dragging Brent higher,” said Warren Patterson, head of commodities strategy at ING Groep NV. “There are clear concerns over Cushing inventory levels, which is well reflected in the WTI prompt spread.”
MY TAKE: Putin let the "cat out of the bag" in an interview on October 21 when he said that several of the OPEC+ countries cannot produce up to their quotas. I believe that OPEC+ cannot increase production by 400,000 bpd per month (the cartel's goal) and will probably run out of spare capacity within six months.

World oil demand will hit 100 MMBbl/d shortly (Goldman Sachs)
> Gas-to-oil switching for power generation may contribute at least 1 MMBbl/d to oil consumption, with gas forwards incentivizing that through winter, according to the bank
> Goldman also noted that oil prices are not high enough to generate demand destruction given falling energy intensity in developed markets and rising income levels in emerging markets
MY TAKE: Goldman's forecast that Brent will be over $90/bbl my December is probably too low.

Natural Gas

For the strip for ngas: The trend is UP. A change in trend would require a weekly close below $5.17. Buyers are in Control above $5.10. Market-Driven hedges for producers are available at current prices.

Gas ship shortage threatens to worsen global energy crisis
> Charter rates for LNG vessels are currently at a nine-month high as U.S. exports to Asia increase
> Pacific bain LNG freight rates are at $203.5k/per day, with reports that some are asking up to $220k - $275k/per day
> Asia and Europe are competing for a shrinking pool of spot LNG cargoes as utilities try and refill inventories before winter
MY TAKE: We ain't seen nothing yet. The "Mother of all Bidding Wars" will get a lot more serious when the first winter cold waves hit Europe.

Freeport LNG to reduce loadings due to pipeline maintenance
> North to south capacity on a segment of Boardwalk Pipeline Partners’ Gulf South pipeline will cut flows by up to 650 MMcf/d during the work that will occur from Oct. 26 to Nov. 9, according to a notice
> Freeport LNG has the option to get gas from other pipelines, including Enbridge’s Texas Eastern Transmission Gas Pipeline, making it unclear how many loadings will be affected
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Oct 25

Post by dan_s »

US RESEARCH PUBLISHED BY RAYMOND JAMES & ASSOCIATES 10/25/2021

Energy Stat: Still Upside to the 2022 Henry Hub Strip, but Weather is the Ultimate Wildcard

With the recent spike in international prices, natural gas has become relevant to the mainstream media for the first time in years. All it took to make it grab headlines was Asian and European natural gas prices moving to more than 200% of Brent crude oil prices on a fully converted basis ($/Boe) — yes, this has happened even while Brent has been making multi-year highs in the mid-$80s per barrel itself. Here in the U.S., Henry Hub prices have posted big gains too — though only to a more reasonable ~$6/MMBtu for a few days. Still, the next handful of contracts are trading above $5 and domestic producers/investors have to be pleased. Remember, we've been one of the leading voices regarding the bull case for U.S. natural gas prices...but even we have been surprised to see how quickly and dramatically the price action has developed.

Today’s Stat addresses:
1) what has been causing the international energy crunch;
2) where we think domestic inventories would shake out at strip prices in 2021-22;
3) changes to our model (spoiler alert: upside in U.S. supply is partially offset by higher LNG exports and lower hydro market share);
4) why we think the 2022 strip is still too low (though the shape of the curve matters); and
5) which stocks to play the natural gas theme.

Summing it all up: Current strip pricing would no longer push U.S. gas inventories to “unacceptable” levels in 2022, but demand/export growth tells us we need to refill storage more substantially next year. It is our view that U.S. natural gas prices will still need to move moderately higher in 2022 to send U.S. inventories back up closer to the ~4 Tcf range — which is what we consider to be “full” storage. Our work suggests that average Henry Hub prices of ~$4.50 in 2022 do the trick.
The biggest driver of this opinion is our analysis of U.S. total supply days of consumption plus exports — which are drifting lower even if the 4 Tcf level is achieved in 2022. While our assumption of normal weather might lead to some downside relative to contracts towards the end of winter 2021-22, the skew is still to the upside — we think coal switching in the $4 range remains a (fundamentals driven) downside floor for gas prices in a bear scenario, but the bull case is much higher.

MY TAKE: The upstream companies in our Sweet 16 and Small-Cap Growth Portfolios start announcing Q3 results this week (AR, EQT, RRC). I will be updating my forecast/valuation models as fast as I can AND I WILL BE INCREASING THE OIL AND GAS PRICES USED FOR 2022 TO $80/bbl oil and $4.25/mcf of ngas.

Send me an email if you'd like to read the full (12 page) RJ report: dmsteffens@comcast.net
Last edited by dan_s on Mon Oct 25, 2021 10:49 am, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Oct 25

Post by dan_s »

World Oil: Wall Street projects a “higher for longer” era for oil prices.
While the U.S. shale boom brought about a “lower-for-longer” mantra, the market is now fixated on climate change and the dwindling appetite to invest in fossil fuels. Instead of growing supply, companies are under pressure to limit their spending, causing a structural under-investment in new production that -- the argument goes -- will keep oil prices higher for longer.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Oct 25

Post by dan_s »

Closing Prices:
> WTI prompt month (DEC 21) was unchanged $0.00 on the day, to settle at $83.76/Bbl.
> In contrast, NG prompt month (NOV 21) was up $0.618 on the day, to settle at $5.898/MMBtu. < Weather forecast show a fairly significant cold front moving down from Canada on November 1. Joe Bastardi's November forecast is quite cold.
Dan Steffens
Energy Prospectus Group
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