Oil & Gas Prices - Jan 26

[dan_s]

Opening Prices:
> WTI is up $1.25 to $81.40/bbl, and Brent is up $1.25 to $87.37/bbl.
> Natural gas is down -23.2c to $2.835/MMBtu. < Keep in mind that this is the FEB23 NYMEX contract that is about to expire, so all of the Paper Traders that are long must close their positions or take physical delivery.

AEGIS Notes
Oil

Oil extends gains amid optimism over China’s demand
> Mar ’23 WTI gains more than $1 this morning to trade above $81/Bbl
> Chinese authorities said that the number of virus-related deaths and severe cases in hospitals is currently 70% lower compared to peak levels in early January (BBG). This could lead to the further relaxation of COVID restrictions and increase the nation's mobility and fuel consumption.

Additionally, the US dollar fell to its lowest since April ‘22, supporting crude prices
A weaker dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay more for the same amount of goods

The Chinese Center for Disease Control and Prevention reports that Covid-related deaths and cases have dropped by over 70% from high levels in early January (BBG)
> Daily deaths fell to 896 on Monday compared to nearly 4,000 on January 4; severe cases were reported at 36,000 on Monday compared to 128,000 on January 5 (very low numbers for a country with 1.5 billion people.)
> Chinese oil consumption is expected to hit a record this year as the world’s biggest crude importer abandons its Covid-zero policy
> Daily demand — which contracted last year — is expected to climb by 0.6-0.8 MMBbl/d in 2023

Natural Gas

Natural gas prices are down 8.3% in the prompt month, falling to the lowest level since May 2021
> The Summer ’23 strip is down 14c to $3.06, and the Winter ‘23/’24 strip is down 13c to $4.02
> Weather forecasts for the Northeast and Midwest regions have shifted warmer in the 11-15 day forecast period
> The Northeast forecast warmed by 16.9 °F, while the Midwest regions forecast gained 18 °F in the 11-15 day period

The EIA will release its weekly natural gas storage report today
> The median analyst expectation is for a withdrawal of 83 Bcf, according to the Bloomberg survey, which would be about 90 Bcf less than the five-year average

Gas and power prices in the western US remain high (S&P)
> Spot prices at hubs in California and the Pacific Northwest have remained above $10/MMBtu for 40 consecutive trading days
> High gas prices are continuing to drive power prices higher, with prices averaging $155.73/MWh this month in the Pacific Northwest, up 275% from January 2022
> Low storage levels and increased demand for heating have contributed to sustained higher prices

Mexico Pacific Limited is looking to secure gas from the Permian Basin (S&P)
> LNG developer MPL disclosed negotiations to purchase gas from Oneok’s proposed Saguaro Connector pipeline, which will transport 2.8 Bcf/d of gas from the Permian Basin to facilities on the US-Mexico border
> Construction of the pipeline is scheduled to begin in 2024, and commercial operations are expected to begin in 2025
> MPL is expecting its proposed LNG terminal will begin receiving gas in 2026 and will be constructed on the Pacific coast of Mexico

[dan_s]

Closing Prices:
> Prompt-Month WTI (Mar 23) was up $0.86 on the day, to settle at $81.01
> Prompt-Month Henry Hub (Feb 23) was down $-0.123 on the day, to settle at $2.944

In my newsletter that is coming out on Monday I will be discussing why Morgan Stanley and several other Wall Street firms are forecasting that Brent will go from $85/bbl in Q1 to $90/bbl in Q2 and eventually to $110/bbl in Q4.

Brent closed at $87.82 today.

They also forecast that WTI's discount to Brent will shrink to $2.50/bbl by Q4.

I think natural gas prices have fallen because the utilities are no longer in the futures market for physical supply since they believe they have enough gas in storage to make it through the winter. Like they did last summer, the utilities and the LNG exports will come back into the "Bidding War" in Q3 because they must refill storage. Out rising LNG export capacity has changed the U.S. natural gas market.