Oil & Gas Prices - Sept 19

Oil & Gas Prices - Sept 19

Postby dan_s » Mon Sep 19, 2022 9:14 am

Opening Prices:
> WTI is down $2.50 to $82.61/bbl, and Brent is down $2.26 to $89.09/bbl.
> Natural gas is down -29.8c to $7.466/MMBtu.

AEGIS Notes
Oil

Oil fell nearly 3% this morning amid expectations of a Fed hike and a strong U.S. dollar
> The U.S. dollar held near recent highs ahead of this week’s Fed meeting on Wednesday, where monetary policy is expected to be further tightened to tame inflation
> A more expensive dollar can cause foreign buyers of dollar-denominated commodities to pay more for the same amount of goods

Iran's president, Ebrahim Raisi, says that he needs guarantees that the U.S. won’t walk away from a nuclear deal again as a condition for his country to enter into an accord (BBG) < IMO this is impossible for Team Biden to deliver since no president can keep the next (smarter) president from walking away from a bad deal with a country to sponsors terrorist groups.
> “There needs to be guarantees. If there were a guarantee, then the Americans could not withdraw from the deal,” Raisi told the CBS News
> Raisi expressed displeasure that the Biden administration has kept sanctions imposed by Trump after he had exited the last agreement
> The statements coincide with ongoing talks to resurrect the 2015 Iran nuclear agreement, which might bring Iranian barrels back to the market but have so far failed to make any progress < Iran is just "playing" with Team Biden. They have no intention of slowing down their uranium enrichment program.

China lifts the two-week-long lockdown on the southwest megacity Chengdu, allowing the city’s 21 million residents to resume life as normal (BBG)
> Residents will still be required to submit to testing at least once per week, and they will need to show proof of a negative test within the previous 72 hours to use public spaces and transportation
> The easing of lockdowns might improve the demand outlook in one of the world’s largest crude consumers

MY TAKE: Monday morning dips in the prices of oil and gas are caused by very tight stop loss orders on Friday. It just takes one big seller when the markets open on Monday to trigger a computer-generated selloff. At the time of this post, WTI is already back to $84/bbl.

Natural Gas

Natural gas prices are down 3.5% to start the week < Now back to $7.68.
> Prompt-month prices are down about 20% from last week's intraday high of $9.24
> Lower 48 weather forecasts have materially cooled for the next 1-5 days, with the most change occurring in the Northeast and Midwest

Gas producers struggling to meet demand (Reuters)
> Strong demand from power generators and LNG has left U.S. gas producers struggling to supply enough gas
> Electricity generation is set to make a record high this year due to economic activity and above-average summer temperatures
> Coal retirements and limited hydroelectric output have led to generators burning record amounts of gas
> Total working gas in storage is currently the second lowest for this time of year since 2010 despite consistently high prices

Europe continues to scramble for gas in anticipation of winter (Reuters)
> France is preparing to send gas to Germany, Spain says it may be forced to shutter energy-intensive industries during times of increased power demand, and Finland warned residents of potential power outages
> EU gas storage is 85.6% full, and coal imports could rise to the highest level since 2017 as countries stockpile gas and coal

MY TAKE: We are in the middle of the "Shoulder Season" for natural gas. Mild weather = lower demand. However, a La Nina winter is coming, and the U.S. and Europe don't have enough ngas or heating oil to make it through a cold winter. This is just the "calm before the storm".
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 30119
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Sept 19

Postby dan_s » Mon Sep 19, 2022 9:31 am

Note this morning from ScotiaBank

Commodity Price Volatility Is High, but Equity Valuations Remain Low

OUR TAKE: Positive. North American natural gas prices continued to move over the summer, with the 120-month Henry Hub strip gaining >23% since late April 2022. While natural gas prices have been volatile in the face of several recent market events (e.g., Freeport LNG shutdown, EPA turbine ruling, Nordstream pipeline shutdown, and speculation over a US rail strike), they remain elevated and materially above the prices implied in the natural gas equity valuations. With the continued strength in long-term natural gas prices we have updated our net asset value (NAV) assumptions and commodity price scenarios, resulting in a moderate increase to our average valuation price to US$3.80/mmBtu (from US$3.50/mmBtu previously) and several target price increases. We have also made tweaks to some of our other modeling and type curve assumptions and upgraded Crew Energy Inc. (CR-T) to Sector Outperform.

KEY POINTS

Choose your own commodity adventure. The current 120-month WTI strip is at ~US$64.50/bbl (down from ~US$71/bbl in late April; see Exhibit 2), while the current 120-month Henry Hub strip is at US$5.34/mmBtu (up from US$4.33/mmBtu in late April; see Exhibit 3). With the increase to the Henry Hub Strip, we have updated our valuation scenarios and bumped our average Henry Hub price to $3.80/mmBtu (our WTI price remains at ~US$70/bbl). We have also made updates to some of our model and type curve assumptions, including crisping up our US company estimates and select Canadian forecasts for recent company updates, and reviewing several of our type curves (including increasing our SWN Haynesville type curve assumptions).
---------------------
MY TAKE: Even if you assume HH gas prices will average $3.80 for the rest of this decade, all of our gassers are trading today at a discount to any reasonable valuation. IMO the "Structural Change" in the North American natural gas market will keep ngas prices much higher. Only a mild winter will push ngas prices under $5.00 after Q1 2023.
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 30119
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Sept 19

Postby dan_s » Mon Sep 19, 2022 10:08 am

This is why WTI is not $100/bbl: https://www.marketwatch.com/investing/index/dxy

Since the beginning of this year, the US dollar is up more than 15%. < an insane move for any global currency.

Oil trades in US dollars, so if the US dollar goes up the price of oil and most commodities goes down.

The GLOBAL ENERGY CRISIS is just taking a pause because we are in the mild weather of "Shoulder Season". This winter is going to be brutal in Europe, driving up demand and the price of heating oil.
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 30119
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Sept 19

Postby dan_s » Mon Sep 19, 2022 3:44 pm

Closing Prices:
> Prompt-Month WTI (Oct 22) was up $0.62 on the day, to settle at $85.73
> Prompt-Month Henry Hub (Oct 22) was down $-0.012 on the day, to settle at $7.752 < up to $7.88 in after the market closed trades.

MY TAKE: I've been watching the oil & gas markets for decades. About 90% of the time, unless there is a significant geopolitical event, big selloffs in the oil market seldom hold up because they are caused by one or two big sellers and a lack of buyers. Computers are making most trades right when the NYMEX market opens on Monday.

Also, remember that the oil and natural gas markets are now totally different markets. There was no reason for HH ngas to follow oil lower this morning. The U.S. will definitely be "short" ngas heading into the winter heating season and La Nina is going to create a rough winter. LNG exports will be ramping up at the same time cold waves roll across the nation.
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 30119
Joined: Fri Apr 23, 2010 8:22 am


Return to The View from Houston

Who is online

Users browsing this forum: No registered users and 10 guests