Oil & Gas Prices - Feb 9

[dan_s]

Opening Prices:
> WTI is down 10c to $57.87/Bbl, and Brent is down 1c to $60.55/Bbl.
> Natural gas is down 7.6c to $2.806/MMBtu.

AEGIS Morning Notes
Crude Oil

Oil prices sustained their rally to set another 13-month high yesterday and held gains overnight
The dollar has weakened further from its recent high of $91.52 on 02/04, by 90 pips to $90.61
Brent and WTI were at their most overbought levels since 2012 and 2017, respectively, on a relative strength index basis

Trading house, Trafigura Group, calls for a bull run even as rivals urge caution (Bloomberg)
Vitol and Gunvor Group presented more cautious outlooks, saying prices may have returned to $60 too quickly. They also said that an influx of shuttered oil production could flood the market
Co-head of oil, Luckock, said in an interview that he expects physical crude stocks to tighten as a return in fuel demand prompts refiners to purchase crude to boost runs to meet the increase in demand

Iran’s foreign minister Mohammad Javad Zarif said it is “inevitable” that the U.S. will return to the nuclear agreement (Argus)
The U.S. has insisted otherwise, with President Biden saying he would not lift sanctions on Iran as recently as February 5. The yet-unscheduled next meeting of the JCPOA Joint Commission likely will include presence from the U.S. for the first time since 2018, giving the first opportunity for U.S. and Iranian officials to meet
U.S. officials say they have already started talks with allies in Europe and other JCPOA members and plan to brief Congress on Biden’s approach to Iran before talks resume with Tehran
Any new agreements would require Iran to bring its ballistic missile program to the negotiating table, which Iran has said will only be an option if the U.S. is prepared to discuss limitations to its military activity in the Middle East

Natural Gas

Freezing temperatures continue to ice the U.S., resulting in another price hike
Polar Vortex conditions continue to move through the central U.S. as temperatures in International Falls, Minnesota, reached negative 36 degrees Fahrenheit on the morning of Feb. 8 (AccuWeather)
Prices in the PJM (Pennsylvania, Jersey, Maryland Power Pool) region, whose electricity grid spans a total of 15 states, have increased $3/MMBtu since last week, with Tetco M3 trading near $4/MMBtu (Platts)

Asian LNG prices lower, but continue to support full U.S. LNG utilization
Despite being off their record highs of last month, spot LNG prices continue to incentivize LNG cargoes to be shipped to Asia, as JKM prices sit at $8.430/MMBtu, which is more than four times the record low of $1.825/MMBtu seen last April
As prices in Asia return to normal, more cargoes head to Europe, who saw their LNG volumes reduced during Asia’s price surge, as TTF for March deliveries settled at $7.132/MMBtu on Feb. 8

Nord Stream 2 pipelaying resumes in Danish waters despite mounting U.S. pressure
A Russian-owned Fortuna vessel resumed work in the Danish Exclusive Economic Zone, defying US sanctions imposed on Jan. 19 against both the vessel and its Russian owner
A little over 93 miles remain in the project, through both Danish and German waters before making landfall on the northern German coast
U.S. President Joe Biden has said he believes Nord Stream 2 is a “bad deal for Europe” < Does anyone think the Russians or China are afraid of Biden?

[dan_s]

Amy Sergeant, CFA – Morgan Stanley
February 9, 2021 10:56 AM GMT

Forward margins surge: The rally in crude oil prices has been the main focus in recent weeks, but forward refining margins have found further momentum too (see 1). Margins for Dec21/22/23 are now back to levels not seen since early 2020, driven by forward gasoline and distillate cracks. When flat price and refining margins rally simultaneously, this is often a bullish indicator. Crude structure a contributing factor: While forward margins rally, spot refining margins remain under pressure, and this has been partly driven by moves in the crude oil curve structure. The 1-12 month Brent spread has risen from $1.30/bbl at the start of the year to $4.40/bbl today, with strong momentum in the front offset by producer hedging further forward. This wider spread supports forward cracks relative to spot cracks. Moves also reflect fundamentals: These moves also reflect the demand outlook for 2021. In the near term, oil demand remains weak, with 5.8 billion people under some kind of "stay-at-home" requirement and around 6 billion with some kind of domestic/international travel restriction. We estimate current demand at 95 mb/d, or 6 mb/d below 4Q19 levels, keeping spot margins under pressure to constrain refinery throughput. Yet, the forward outlook is improving rapidly. With vaccine roll-outs accelerating, we see room for mobility restrictions to be eased later in the year, which should drive global demand to 99 mb/d by 4Q, a 4 mb/d increase through the year and down just 2 mb/d versus 4Q19 levels. This should allow higher refinery utilisation rates and stronger margins, which are already coming through.

Keep in mind that non-OPEC+ production is down ~4 million barrels per day. Down ~2 mb/d just in the U.S.

[dan_s]

Closing Prices:
> WTI prompt month (MAR 21) was up $0.39 on the day, to settle at $58.36/Bbl. < All of my forecast/valuation models are based on WTI averaging $45/bbl in Q1 and $50/bbl in Q2.
> NG prompt month (MAR 21) was down $0.047 on the day, to settle at $2.835/MMBtu. < My models are based on HH gas averaging $2.75 in Q1 and $2.50 in Q2.