Oil & Gas Prices - August 23

[dan_s]

Opening Prices:
> WTI is up $2.04 to $64.18/Bbl, and Brent is up $2.18 to $67.36/Bbl.
> Natural gas is up 7.0c to $3.921/MMBtu.

AEGIS Notes
Oil

The record-setting 40-week up-TREND has officially come to an end as WTI settled at $62.32 on Friday. As it stands, sellers are in control; price action will be watched closely over the next week. The control is at $65.20, and if WTI manages to hold above that level it would indicate that the down-Trend is suspect. Should the market test the Control, that level would be a good location for producers to add hedges. A weekly close below last week’s low of $62.00 will confirm the Down Trend. Risk-driven hedges for Producers are now recommended while prices remain at profitable levels.

Crude oil rallies on Monday morning after logging the longest run of declines in more than three years that settled below $63/Bbl on Friday
> The Delta variant coronavirus continues to impact nations around the globe, but China has made progress in containing the spread (Bloomberg)
> U.S. drilling rigs climbed by three to 503 last week; up 249 from 2020

Market Calls (GS, BofA):
> Bloomberg: Goldman maintains its 4Q Brent price target of $80/Bbl Oil has sold off the past three weeks as delta concerns clouded the outlook for demand, according to Goldman Sachs. However, prices “have overshot time spreads to the downside, suggesting an oversold market,” the bank said in a note
> In an Aug. 19 report, BofA said OECD oil inventories are the lowest in more than five years, but more steep draws are unlikely due to the effect of Covid-19 Delta variant. BofA expects oil prices to remain range bound in 2H. Brent curve set to be flatter into winter with distillates dragging crude down, BofA said in the report.

Money managers cut their outright long positions in WTI to the lowest since April 2020
The speculator net position is the smallest since November 2020
The biggest movement in WTI saw a reduction of 78k spread positions in the “other reportable category,” the most since May

Natural Gas

The trend for natural gas prices is UP. A change in trend would require a weekly close below $3.73. Sellers and buyers are vying for control at $3.85. Market-Driven hedges for producers are available at current prices.

The prompt-month gas contract is up 7c this morning at $3.92
The 1-5 day weather forecasts have turned warmer for the mid-continent and northeast regions, while the forecast has cooled for the U.S. west
The 6-10 day forecast shows cooler mid-continent, and warmer northeast temperatures
Since Friday, the total gas-weighted cooling degree day count rose from 336 to 342 for August

Several Canadian producers, including the country’s largest gas producer, intend on increasing capital spending and production volumes, diverging from U.S. producer’s strategies
The active rig count in Canada has rebounded near pre-COVID-19 levels at 156 total rigs, with 60 gas-focused rigs in the region
Tourmaline, Canada’s largest gas producer, said it plans to expand production in 2022, with gas averaging 2.31 Bcf/d during Q2 2022, which would represent a growth of 890 MMcf/d since the onset of the pandemic and another 200MMcf/d from the current quarter
“With the increased positive outlook for commodity prices for the remainder of 2021, we have increased our 2021 capital budget by $275 million to $3.48 billion as we undertake lead activities for future growth opportunities,” said Tim McKay, president of Canadian Natural, during the company’s Q2 earnings call.

[dan_s]

Closing Prices:
> WTI prompt month (OCT 21) was up $3.50 on the day, to settle at $65.64/Bbl.
> NG prompt month (SEP 21) was up $0.094 on the day, to settle at $3.945/MMBtu.

Positive signs on the pandemic front in China and a falling US dollar helped push up oil prices as risk-on sentiment gripped markets.

The US Dollar Index Futures, which measures the greenback against a trade-weighted basket of six major currencies, slid by 0.56% to 92.99.

A weaker dollar makes oil, priced in the U.S. dollars, attractive in other currencies, boosting demand.

As I stressed in yesterday's podcast, the first order of business is for WTI to stabilize in a "trading range". IMO $65/bbl is the "Right Price" for now considering all of the noise in the market (Delta Variant, Afghanistan, Sale of oil from the SPR, wondering what the Fed will do next and Iran clearly challenging the Biden Team).

As of 7:00 PM ET on August 23, the population-weighted nationwide temperature is 86.9°F which is 3.4°F warmer than yesterday and 4.8°F warmer than the historical average. Accumulated Natural Gas-Weighted Degree Days (GWDDs) through 7:00 PM EDT tally 10.6 GWDDs which is 1.2 GWDDs greater than yesterday through the same time and 1.5 GWDDs greater than average. This suggests an above-average contribution of temperature to natural gas demand.

Natural gas and NGL prices are going to move higher as winter approaches. The propane supply deficit is a really big deal that isn't drawing much attention. It will if we have a cold December.