Oil & Gas Prices - Dec 17

[dan_s]

Opening Prices:
> WTI is down 113c to $71.25/Bbl, and Brent is down 120c to $73.82/Bbl.
> Natural gas is down 5.0c to $3.716/MMBtu.

AEGIS Notes
Oil

Oil futures fell Friday morning after rising 2.3% over the past two sessions
> COVID uncertainty remains as cases and hospitalizations in the U.S. surge

> Goldman Sachs says $100 oil is possible: Oil reaching $100/Bbl in 2023 cannot be ruled out as supply additions are expected to be too slow to keep up with record demand, according to Goldman (BBG)
> The IB bank’s base forecast is for Brent to stay around $85/Bbl next year and in 2023: > Oil prices could hit triple digits through either higher inflation costs for drillers or if an unexpected supply shortfall forces prices to spike high enough to destroy demand, according to Damien Courvalin, head of energy research

The premium of Brent crude to WTI may narrow over the next year if U.S. production disappoints, Energy Aspects research director Amrita Sen said in an interview on Bloomberg TV
> Focus on cleaner energy is leading to a path where no one is being incentivized to pump oil; that’s why there’s a discrepancy between demand and supply
> European refiners now want WTI-quality crude amid high natural gas prices
The added pull of U.S. crude could send WTI higher relative to Brent “if U.S. production doesn't grow as much”

MY TAKE: There is a lot of "noise" in the oil market, primarily Covid / Omicron related travel restrictions. Team Biden's "scheme" to release oil from the SPR and OPEC+'s gradual increase in supply are keeping a lid on the oil price. Except for an increase in gasoline demand during the holidays, winter is the seasonal low point for oil demand. U.S. and OECD petroleum inventories are too low for this time of year and demand always spikes in Q2. We are just a few months away from a very tight global oil market.

Natural Gas

Natural gas prices are down by 5c this morning, near $3.716
> Weather forecasts for the U.S. shifted much warmer overnight, with the gas-weighted heating degree day total falling by 19.5 HDDs to 704.5

The EIA reported an 88-Bcf withdrawal for the week ending December 10
> The withdrawal was in line with what most analysts were expecting and is the largest of the heating season so far
> The deficit to the five-year average narrowed to 64-Bcf

European gas prices fell as Russia booked additional pipeline capacity at the last minute
> The TTF benchmark for Europe is still headed for its largest weekly gain since July as inventories are at their lowest level ever for this time of year.
> Europe's weather forecasts have eased and the cold snap is expected to not last as long as previously forecasted
> Traders are expecting extra volatility as Russia’s supply strategy remains uncertain, especially given increasing political tensions with Ukraine

[dan_s]

Why U.S. oil production hasn’t rebounded along with crude prices?
MarketWatch.
Oil prices have rallied back to their per-pandemic levels and then some, but U.S. crude production has yet to fully rebound, as coronavirus variants wreck havoc on the outlook for economic activity and energy demand. “Higher oil prices should encourage more drilling,” said Marshall Steeves, energy markets analyst at IHS Markit. That’s “likely forthcoming to some degree in the coming year.” But it seems unlikely that output will climb to the 13.1 million barrels per day pre-pandemic peak from February 2020 anytime soon, “given the comparative slow recovery in investment,” he told MarketWatch.
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MY TAKE: I think there is a good chance that U.S. oil production never gets back over 13 million bpd, but it definitely is not happening in 2022 and probably not in 2023 either unless WTI goes firmly over $100/bbl.