Oil & Gas Prices - Mar 9

[dan_s]

Opening Prices:
> WTI is down $5.74 to $117.96/bbl, and Brent is down $5.13 to $122.85/bbl.
> Natural gas is down -3.5c to $4.492/MMBtu.

AEGIS Notes
Oil

Oil prices turned lower Wednesday morning after reaching prices not seen since 2008
> The U.S. unveiled legislation early Wednesday barring U.S. imports of Russian oil
> Goldman estimates Russian oil disruptions to be among the largest in history (Bloomberg)

Diesel spreads and cracks in the U.S. and Europe have surged
> The Nymex heating oil crack rose $18.50 to $65.32/Bbl on Tuesday; the strongest close since at least 1986
> There are signs that fuel makers in Europe have to limit supplies
> At one point on Tuesday, buyers were willing to pay as much as $185 a ton more for the fuel this month rather than waiting until April
> That’s the largest premium of its kind in data going back to 2008 (BBG)
> “We are looking at how we can save this diesel problem,” IEA Executive Director Fatih Birol said in a Bloomberg TV interview
MY TAKE: As I have highlight in many of my weekly podcasts, the shortage of diesel is a SERIOUS PROBLEM. If Europe is cut off from Russian oil they will very soon be forced to ration diesel. Europe's economy cannot run without a steady supply of diesel. In the U.S. we have plenty of gasoline since ultra-light shale oil can be refined into gasoline. However, our diesel inventories are also very low. We need heavy crudes to make diesel.

Natural Gas

US LNG exporters emerge as winners of European natural gas supply crunch
> U.S. LNG exports have set a new record for the third consecutive month
> According to the EIA, US LNG exports will average 11.4 Bcf/d in 2022
> Asia's liquefied natural gas (LNG) demand growth may cool as record-high spot prices are pushed even higher by Europe's shift to the super-chilled fuel amid the Ukraine crisis, according to Reuters

The prompt-month (Apr' 22) Henry Hub contract is down by 3.5c, near $4.492 < APR22 is the lowest price on the 12-month NYMEX strip. April is the lowest month for weather related demand. Going forward my forecast/valuation models are based on HH gas prices averaging $4.00 in Q2 & Q3, $4.75 in Q4 and $4.00 in 2023. If ngas stays over $4.00 all of our gassers are going to be very profitable.
> Lower-48 dry gas production is down by about 0.67 Bcf/d this morning, near 92.7 Bcf/d, its lowest level in weeks
> LNG feedgas demand is at 12.2 Bcf/d, with flows at Corpus Christi LNG down by 1 Bcf/d
> Weather forecasts worsened with the March gas-weighted heating degree day forecast losing 8 HDDs to 543 HDDs

[dan_s]

There is so much "political noise" that we can expect to see wild swings in the price of oil. However, the global oil market is extremely tight with or without Russia vs Ukraine. Plus, Q2 is when demand for transportation fuels spike higher. Demand may be impacted by higher gasoline prices, but in Post-Pandemic World I don't see families cancelling spring break and summer vacations.

[dan_s]

Per EIA:
Crude Oil Inventories for the U.S. are now at a deficit of 84.90 MMBbls (-17.1%) to last year, and a deficit of 58.80 MMBbls (-12.5%) to the five-year average.

12.5% below the 5-year average is outside of the range and s/b HUGE support for oil prices. Keep in mind that commercial inventories keep falling despite the draws from the SPR.

[dan_s]

Closing Prices:
> Prompt-Month Henry Hub (Apr 22) was down $-0.001 on the day, to settle at $4.526
> Prompt-Month WTI (Apr 22) was down $-15.00 on the day, to settle at $108.70

Since natural gas and NGL prices are primarily set by regional supply/demand fundamentals, I have more confidence in natural gas prices. There is significant upside to my valuations of the "gassers" as I am now using gas prices $0.50/mcf higher ($4.25 in 2022 and $4.00 in 2023). $0.50/mcf is a BIG revenue boost for our large-cap gassers.