Oil & Gas Prices - Jan 30

[dan_s]

At 10:45 AM CT:
> WTI is up $1.13 to $77.91
> NN natural Gas (MAR24) is up $0.05 to $2.11US.

Trading Economics opening comments this morning (before WTI moved higher)
Oil
"WTI crude futures steadied above $76 per barrel on Tuesday, after a 1.6% loss in the previous session as investors assess the risk of a wider geopolitical conflict in the Middle East. Traders were particularly wary about the rising risk of the US being forced into a confrontation with Iran following a drone attack by Iran-backed militants that killed US forces in Jordan. That would adversely impact Iranian oil exports, which accounted for 1-1.5% of global oil supply in 2023. A missile attack on a Transfigura oil tanker in the Red Sea over the weekend also stoked fears of further supply disruptions. Meanwhile, WTI prices tumbled 1.6% on Monday as a Hong Kong court ordered the liquidation of Chinese property giant Evergrande, fueling concerns about the economic health of the world’s largest oil importer."


Natural Gas
"US natural gas futures fell below $2.1/MMBtu, the lowest in nine months, due to reduced demand and increased supply. Higher-than-average temperatures until February 7th are expected to further weaken heating demand. Additionally, gas production is gradually rebounding after being disrupted by a recent Arctic storm. Recent data shows gas storage levels exceed the seasonal average by 5.2%. At the same time, US LNG feedgas is unlikely to return to record levels until mid-February when Freeport LNG's export plant in Texas regains full power."

MY TAKE:
Oil: The price of WTI does not have a large enough geopolitical premium or reflect the tightness of the global physical market. The killing of U.S. soldiers in Syria yesterday by Iran's proxy will force Team Biden to respond. It would show extreme weakness by the administration not to respond to a deadly attack on our troops. There have been over 150 attacks on our bases in Iraq and Syria. Up until yesterday we have been lucky not to have more bodies to fly home.
Oil demand is seasonal and starting in March, demand for transportation fuels will increase globally by more than 2 million bpd. Demand for diesel also increases each spring for crop planting.
WTI is now above my price deck and I expect it to continue moving higher. Keep your portfolios heavily weighted to oil.

Natural Gas: The gas price you see above is the front month (MAR24) NYMEX futures contract for Henry Hub natural gas. The physical buyers (utilities and LNG exporters) are mostly out of the futures market because they believe they have adequate gas in storage to meet demand. The Paper Traders that went long a few weeks ago when we had much colder than normal weather are now stuck with long NYMEX futures contracts that they must close at any price. I will need to lower the natural gas prices used in my forecast models. I do have large "cushions" built into my models for the gassers, so it won't lower my stock valuations too much. If Joe Bastardi's colder than normal forecast for the U.S. from February 10 to March 10 turns out to be accurate, there is still hope for ngas prices. NGL prices have firmed up, which helps most of the companies.

I have a few more Small-Cap forecast models to update today. I will go back and update the forecast models for AR, CRK, EQT and RRC before I start working on the newsletter.

All of the model portfolio companies are going to announce solid Q4 2023 results. Q4 oil and gas prices were above the commodity prices used in my forecast models.

[KGardiner]

Freeport down to half capacity again!

We need more LNG capacity just from a reliability perspective.

Kevin