Oil & Gas Prices - Sept 1

[dan_s]

Opening Prices
> WTI is down $2.00 to $87.55/bbl, and Brent is down $2.07 to $93.57/bbl.
> Natural gas is up 1.6c to $9.143/MMBtu.

AEGIS Notes
Oil

Oil prices tumbled this morning to trade near $87/Bbl
> WTI fell by $2 amid reports of China widening its Covid-19 restrictions
> Meanwhile, China's official manufacturing PMI data released on Wednesday showed that factory activity shrank amid the recent Covid outbreak < We need to send Dr. Fauci over to China.

Finance ministers from the G7 nations will hold talks on the Biden administration's proposed price cap on Russian oil on Friday (BBG)
> The U.S. expects that this will lessen pressure on the energy market and cut overall Russian crude revenue
> "Without a price cap," the economy might be threatened by a "global energy price spike," especially if the majority of Russian production is "shut in," according to U.S. Treasury Secretary Yellen
> Russian oil exports fell by 0.115 MMBbl/d in July to 7.4 MMBbl/d, from about 8 MMBbl/d at the start of the year. Total export revenues fell from $21 billion in June to $19 billion in July on both reduced volumes and lower oil prices

The OPEC+ coalition tightened its outlook for the world's oil markets this year and next year, as members struggle to meet their output targets (BBG)
> The bloc's committee of technical experts cut forecasts for this year's global supply growth to 0.400 MMBbl/d (vs. previously 0.800 MMBbl/d)
> Forecasts for 2023 were changed from a surplus of 0.900 MMBbl/d to a deficit of 0.300 MMBbl/d
> The OPEC+ group is scheduled to meet on Monday to discuss production quotas < As shown on page two of yesterday's EPG newsletter, 8 OPEC cartel member countries did not produce up to their quota in July (INCLUDING SAUDI ARABIA). Total production by the cartel in July was 1,130,000 bpd below the quotas.

Natural Gas

The EIA will release its weekly natural gas storage report today, with traders eyeing changes to the storage deficit
> According to the Bloomberg survey, the median estimate is for an injection of 58 Bcf, while the survey ranges from 53-65 Bcf and the five-year average injection is 47 < My SWAG is 60 Bcf.
> Last week saw an injection of 60 Bcf
> Current inventories are 2,579 bcf, 268 Bcf less than this time last year, and 353 Bcf below the five-year average

Texas Railroad Commission adopts new weatherization rules for natural gas infrastructure (BBG)
> Officials from the RRC have voted unanimously to implement new rules requiring critical suppliers of natural gas to implement measures to remain operational during winter storms
> Officials have also amended a rule that designates gas wells as critical infrastructure based on production amount. Gas wells that produce more than 250k cf/d will be considered critical, up from the previous designation of 15k cf/d
> The changes will keep 78% of the state's daily gas production designated as critical infrastructure

[Cliff_N]

Dan, is there some rationale as to why the Saudis are so quiet while oil is tanking? It would seem after their concerns expressed last week on misinformation and unhelpful perceptions in the market, they would be sounding off this week. Even though OPEC is not meeting the current quotas, do you expect them to cut production in light of China's irrational policy on shutting down cities on news of "cases."

[dan_s]

I do expect them to cut the OPEC+ official quotas because they don't have ANY spare capacity. I went back and checked and actual OPEC production, not including the "+" group lead by Russia, has not produced up to the cartels quotas for AT LEAST 13 straight months.

If China ever gets passed Covid Zero, oil prices are going to go a lot higher.

FEAR of a recession is all I see that is keeping a lid on oil prices.

[dan_s]

Closing Prices:
> Prompt-Month WTI (Oct 22) was down $-2.94 on the day, to settle at $86.61
> Prompt-Month Henry Hub (Oct 22) was up $0.135 on the day, to settle at $9.262

Hang on to your gassers!

It has been a very weird week for oil with the big spike up on Monday. Tuesday's decline was IMO just computers selling to settle the tight stop loss orders set after the Monday run up. Today's decline seems to me to be FEAR of recession, which is just about all the financial news services seem to talk about these days.

Reality is that we are heading toward a cold winter with a global shortage of space heating fuels. I heard yesterday that in the Northeast US some areas are 40% to 50% below the 5-year average on heating oil. Refiners are focused on keeping up diesel production just to keep the trucks running and the farmers need a lot of diesel for harvesting the crops we eat. Therefore, home heating oil production is way behind schedule.

My guess is that OPEC+ cuts production quotas next week. It will be interesting how the market and media react to that.