Matt Marshall, a VP at Aegis Energy who was the opening speaker at our Hess Club luncheon on Oct 9, is now sending me this weekly summary.
Crude Oil
Crude Oil Price Action
Oil reverses course on Friday after the price was headed for the largest weekly drop in price in over a month.
Storage and Production
A large build in crude stocks surprised analysts who were expecting a very small build.
OPEC May Need to Cut Deeper to Balance the Market in 2020
Most industry analysts’ supply-demand scenarios in 2020 still require OPEC to pull the supply-cut lever to balance the market.
Natural Gas
Natural Gas Price Action
The November and December tenors for natural gas went on a run this week as an arctic front moved across the country, sending some areas 50°F below normal. A heavy short position from speculators most likely added additional upward price momentum as they looked to cover their shorts.
AEGIS Updated Gas Outlook
AEGIS is shifting its natural gas outlook to neutral, rather than bullish. Recent gas production growth has removed much of the bullish potential this winter and into 2020.
Earnings Calls Review
Many gas producers are reducing production to low-growth or no-growth levels in 2020, as current commodity strips remain depressed.
Aegis Energy's Oil & Gas Market Summary - Nov 2
Aegis Energy's Oil & Gas Market Summary - Nov 2
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Aegis Energy's Oil & Gas Market Summary - Nov 2
From Tom Pool at OilPrice.com
Oil received a jolt on Friday morning on unexpectedly positive manufacturing data from China and a continued rig count collapse, although it doesn’t put to rest concerns about an economic slowdown. Economic uncertainty continues to dominate the oil market narrative, and markets await the next move in the trade war.
Keystone pipeline spills, TC Energy declares force majeure. TC Energy’s (TSE: TRP) Keystone Pipeline ruptured and spilled more than 9,000 barrels of oil in North Dakota this week. The company declared force majeure on shipments from the 590,000-bpd pipeline. WCS prices fell by more than $3 to a discount of about $20 to WTI, the largest discount since prior to the mandatory production cuts announced by Alberta at the start of the year. “If you start to see this situation where flows are reduced for a long period of time, that’s when you’ll see a price impact” on both WTI and WCS, Mike Walls, an analyst at Genscape Inc., told Bloomberg. Meanwhile, Alberta lifted production curtailments for producers who are shipping oil by rail.
Trade war hurdles remain despite soothing words. President Trump has raised expectations that a partial trade deal is all but a done deal, but hurdles remain. Reuters reports that Trump’s insistence on China buying as much as $50 billion in farm products – more than twice as much as China bought in the year before the trade war – is a sticking point. Bloomberg also reported that Chinese officials are not optimistic about a comprehensive deal, as they do not trust Trump to stick to the terms of any agreement. Still, press reports suggest there is momentum in the near-term for a partial deal.
Saudi budget deficits widens to $50 billion. Saudi Arabia’s budget deficit is expected to widen to $50 billion next year. < This is why Saudi Arabia MUST do whatever is necessary to support oil prices and why the IPO of Aramco needs to happen. The sovereign wealth fund of Saudi Arabia is down to $320 Billion from over $550 Billion just five years ago. - Dan.
Iraq oil workers join protests. Oil workers in Iraq’s southern provinces are beginning to join anti-government protests, according to Iraq Oil Report. For now, Iraqi production has not been affected. < This could turn into a BIG DEAL if the violence spreads. - Dan.
Oilfield services scrap equipment. Bloomberg reports that the surplus of fracking equipment is being stripped for parts and sold off, rather than merely being idled. The industry is expected to use around 13 million horsepower at the end of 2019, out of 25 million horsepower available. Bloomberg reports that around 2.2 million horsepower – about 10 percent of industry capacity – is headed for the scrap heap. < This is another sign that U.S. oil production has gone flat and will likely go negative in 1H 2020. - Dan.
China manufacturing data contracts sharply. Factory data from China showed a six consecutive month of contraction, and activity fell faster than expected. “We expect the official manufacturing PMI to remain sluggish in coming months, the growth slowdown could gather pace, and markets could become more volatile in coming months,” said analysts from Nomura in a note. New data on Friday, however, was more positive.
Oil received a jolt on Friday morning on unexpectedly positive manufacturing data from China and a continued rig count collapse, although it doesn’t put to rest concerns about an economic slowdown. Economic uncertainty continues to dominate the oil market narrative, and markets await the next move in the trade war.
Keystone pipeline spills, TC Energy declares force majeure. TC Energy’s (TSE: TRP) Keystone Pipeline ruptured and spilled more than 9,000 barrels of oil in North Dakota this week. The company declared force majeure on shipments from the 590,000-bpd pipeline. WCS prices fell by more than $3 to a discount of about $20 to WTI, the largest discount since prior to the mandatory production cuts announced by Alberta at the start of the year. “If you start to see this situation where flows are reduced for a long period of time, that’s when you’ll see a price impact” on both WTI and WCS, Mike Walls, an analyst at Genscape Inc., told Bloomberg. Meanwhile, Alberta lifted production curtailments for producers who are shipping oil by rail.
Trade war hurdles remain despite soothing words. President Trump has raised expectations that a partial trade deal is all but a done deal, but hurdles remain. Reuters reports that Trump’s insistence on China buying as much as $50 billion in farm products – more than twice as much as China bought in the year before the trade war – is a sticking point. Bloomberg also reported that Chinese officials are not optimistic about a comprehensive deal, as they do not trust Trump to stick to the terms of any agreement. Still, press reports suggest there is momentum in the near-term for a partial deal.
Saudi budget deficits widens to $50 billion. Saudi Arabia’s budget deficit is expected to widen to $50 billion next year. < This is why Saudi Arabia MUST do whatever is necessary to support oil prices and why the IPO of Aramco needs to happen. The sovereign wealth fund of Saudi Arabia is down to $320 Billion from over $550 Billion just five years ago. - Dan.
Iraq oil workers join protests. Oil workers in Iraq’s southern provinces are beginning to join anti-government protests, according to Iraq Oil Report. For now, Iraqi production has not been affected. < This could turn into a BIG DEAL if the violence spreads. - Dan.
Oilfield services scrap equipment. Bloomberg reports that the surplus of fracking equipment is being stripped for parts and sold off, rather than merely being idled. The industry is expected to use around 13 million horsepower at the end of 2019, out of 25 million horsepower available. Bloomberg reports that around 2.2 million horsepower – about 10 percent of industry capacity – is headed for the scrap heap. < This is another sign that U.S. oil production has gone flat and will likely go negative in 1H 2020. - Dan.
China manufacturing data contracts sharply. Factory data from China showed a six consecutive month of contraction, and activity fell faster than expected. “We expect the official manufacturing PMI to remain sluggish in coming months, the growth slowdown could gather pace, and markets could become more volatile in coming months,” said analysts from Nomura in a note. New data on Friday, however, was more positive.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group