Oil & Gas Prices - Oct 18

[dan_s]

Opening Prices:
> West Texas Intermediate's NOV21 contract traded for $82.99 at the time of this post, up $0.71
> Henry Hub's NOV21 contract traded at $5.131, down $0.279

Platts reported that OPEC+ boosted crude oil output by 470,000 b/d in September, but with many members still struggling to reach their quotas, the coalition is producing far below what it said it would. The 19 members with production quotas under the OPEC+ supply accord were a combined 570,000 b/d below their allocations for the month.

Reuters reported that a global energy crunch is expected to boost oil demand by half a million b/d and could stoke inflation and slow the world's recovery from the COVID-19 pandemic, the IEA said on Thursday. Oil and natural gas prices have soared to multi-year highs recently, sending power prices surging to record levels as widespread energy shortages engulf Asia and Europe. "Record coal and gas prices as well as rolling blackouts are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations humming," the IEA said in its monthly oil report. "Higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery."

Bloomberg reported that air travel has recovered gradually in the U.S. and is almost back to normal while the more fragmented European airline industry is taking longer to claw its way back to pre-pandemic levels, according to high-frequency data. A five-day average of the number of passengers passing through U.S. airport turnstiles surpassed 2 million a day for the first time since mid-August, and the level on October 11 was only 10% below the equivalent weekday in 2019, according to government data.

As a result, global oil demand next year is now projected to recover to pre-pandemic levels, the Paris-based agency added. It made upward revisions to its demand forecasts for this year and 2022, increasing them by 170,000 b/d and 210,000 b/d respectively. An upsurge in demand in the past quarter led to the biggest draw on oil products stocks in eight years, it said, while storage levels in OECD countries were at their lowest since early 2015. Meanwhile, the IEA estimated that producer group OPEC+ is set to pump 700,000 b/d below the estimated demand for its crude in the fourth quarter of this year, meaning demand will outpace supply at least until the end of 2021.

[dan_s]

AEGIS Notes
Oil

Oil prices continued higher Monday morning following an eighth weekly gain
> The rally has been fueled by an energy crunch as winter approaches and key economies rebounding from the pandemic
> A shortage of natural gas and coal is creating extra demand for oil products like fuel oil and diesel from power

OPEC+ failed to pump enough oil to meet their output target, further widening the supply deficit as the world recovers from the pandemic (Bloomberg)
> The cartel cut its production 15% more than planned in September, compared with 16% in August and 9% in July, according to delegates
> AEGIS notes that OPEC+ is underperforming by 650 MBbl/d as a handful of members have not been pumping at their allotted rate < If OPEC+ cannot increase their production by 400,000 bpd per month it will be HUGE Paradigm Shift.

Natural Gas

The prompt-month (Nov ’21) Henry Hub contract is trading 24c lower this morning, near $5.17/MMBtu
> Weather forecasts have warmed up for most of the U.S. South Central/ Midwest regions
> The gas-weighted heating degree day count for October fell by ten over the weekend, from 213 to 203
> TTF prices have also lost some ground, as milder weather forecasts and record wind loosen the supply/demand balance
> Feedgas demand at U.S. LNG facilities is at 11.06/Bcf/d, as Freeport LNG increased consumption by 0.5 Bcf/d
MY TAKE: Weather in October very seldom has an impact on natural gas demand. In fact, October always has big builds in natural gas storage. The long-range forecast from https://www.weatherbell.com/premium/ shows much colder weather coming by mid-November.

China looks to the U.S. for long-term deals to secure LNG during the energy crunch (Reuters)
> At least five Chinese firms, including Sinopec, China National Offshore Oil Company (CNOOC), and local government-backed distributors have entered negotiations with U.S. LNG suppliers
The new purchases are expected to cement China as the world’s top LNG buyer, overtaking Japan

[dan_s]

Closing Prices:
> WTI prompt month (NOV 21) was up $0.16 on the day, to settle at $82.44/Bbl.
> In contrast, NG prompt month (NOV 21) was down $0.421 on the day, to settle at $4.989/MMBtu.

Wild swings in the natural gas price will be the norm for awhile. The weather forecasts are the primary driver now.