Oil & Gas Prices - July 1

[dan_s]

MY TAKE is that yesterday's big drop in natural gas prices was more about the last day of a quarter than the slightly bearish ngas storage report. However, I am lowering the natural gas prices used in my forecast models from $8 to $6 in Q3 and $9 to $7 in Q4.
> Even if Freeport LNG remains offline, I see little chance that ngas storage will get back to the 5-year average by mid-November.
> Weather will be the primary driver of ngas prices.
> La Nina will have a big impact on the U.S. weather.
Oil Prices should stay in triple digits because the global oil market is TIGHT and heading to VERY TIGHT. The global energy crisis was not solved in June and there is no Quick Fix to the crisis our clueless leaders have created.

Opening Prices:
> WTI is up $2.80 to $108.56/bbl, and Brent is up $2.98 to $111.83/bbl.
> Natural gas is up 51.2c to $5.936/MMBtu.

AEGIS Notes
Oil

Libya’s production had dipped to averaging less than 0.4 MMBbl/d recently, down from its average 1.1 MMBbl/d in 2021, says its national oil company
> Most recently, force majeure was declared at the first- and third-largest export terminals, due to a political crisis that has escalated (Bloomberg)
> AEGIS notes Libya’s production is often at risk, due to unrest in the country. The Libya outage reduces supply when the globe is already undersupplied, and it increases the bid interest for near-term crude

Norway’s upcoming labor strike at oil facilities may temporarily remove 50,000 Bbl/d of supply (Reuters). The amount of crude may seem immaterial to the global supply-demand balance, but the location in the North Sea has influence over Brent assessed prices.

The US dollar’s value is back near its recent highs, and it is likely limiting oil prices from being as high as they could be
> The DXY index has rallied this week back to near 105.
> Except in the last two months, the dollar has not been so strong, versus a basket of major currencies, since late 2002. A strong dollar makes oil more expensive for non-dollar buyers of oil, so an expensive dollar typically restricts the dollar price of oil.

Energy executives expect $108/Bbl WTI price by the end of 2022, per a Dallas Fed survey released last week
> The survey was done during June 8-16, when December 2022 futures traded at an average of near – you guessed it – $108. Futures for December have since slipped to near $98
> The “special questions” are often the most interesting part of the survey. This edition asked how long supply-chain and labor issues may persist.

Natural Gas

Natural gas futures are up by 40c+ this morning but are still on track to finish lower on the week
> The EIA reported an 82-Bcf injection for the week ending June 24 < Slightly bearish IMO
> The injection was larger than the 74-Bcf injection expected by analysts, though survey responses ranged from 68 to 80 Bcf
Natural gas inventories are 296 Bcf, or 11.6%, less than the year-ago level of 2.547 Tcf and 322 Bcf, or 12.5%, below the five-year average of 2.573 Tcf
> AEGIS notes yesterday's bearish storage print and resulting selloff surprised most analysts because it came despite very hot temperatures at the end of June, though renewables offset some of the increases in power demand. It could be our first sign that production is creeping higher

Russia seizes control of the Sakhalin LNG project in a showdown with the West
> President Vladimir issued a decree that seizes full control of the Sakhalin-2 gas and oil project in Russia's far east, a move that forces out Japanese investors and Royal-Dutch Shell
> Moscow said it sees no reason for Sakhalin-2 deliveries to stop, but it adds more uncertainty to an already undersupplied LNG market
> Sakhalin-2 is one of the world's largest LNG projects, with an output of 12 (1.57 Bcf/d) million tonnes. Its cargoes mainly head to Japan, South Korea, China, India, and other Asian countries

[dan_s]

Trading Economics:
"WTI crude futures were trading above the $108-per-barrel mark, bouncing off their daily lows of $104.6 as investors balanced a tightening market against a backdrop of weakening global economic growth and subdued demand. OPEC+ agreed earlier this week to stick to its output strategy, increasing production by 648,000 barrels per day in July and August, despite signs that the physical crude market remains very tight. Supply outages in Libya and expected shutdowns in Norway also add to the bullish outlook. On the flip side, fears of a demand-sapping recession continued to hang over the market. The US benchmark added roughly 1% this week, on track to post its first weekly gain in three."

[dan_s]

Closing Prices:
> Prompt-Month WTI (Aug 22) was up $2.67 on the day, to settle at $108.43.
> Prompt-Month Henry Hub (Aug 22) was up $0.306 on the day, to settle at $5.730.

Americans will be burning up a lot of gasoline over the 4th of July weekend. July will be an interesting month. I am expecting WTI to average more than $115/bbl during Q3.