Oil & Gas Prices - April 11

[dan_s]

Opening Prices:
> WTI is down $4.33 to $93.93/bbl, and Brent is down $4.17 to $98.61/bbl.
> Natural gas is up 16.3c to $6.441/MMBtu.

AEGIS Notes
Oil

West Texas Intermediate extends losses from last week as the prompt contract is now near price levels observed right before Russia’s invasion of Ukraine
The front of the forward curve has been volatile and may have given up previous gains, but the rest of the curve has been much higher since mid-February
Curve movements since February 22:
> Prompt, up $1.40
> 2H 2022, up $6.92
> Cal 2023, up $6.96
> Cal 2024, up $5.48
> Cal 2025, up $3.52

Oil analysts continue to cut their demand forecast as China’s Covid outbreak curbs travel (BBG)
> Wood Mackenzie forecasts gasoline and jet fuel demand falling by 750 MBbl/d in March and 600 MBbl/d in April due to the current wave of lockdowns
> Virus cases continue increasing in Shanghai, and there is no clarity on when restrictions will be lifted

Natural Gas

Natural gas prices are up this morning as momentum from last week’s rally continues on cooler weather forecasts
> The weather forecasts have continuously turned cooler over the last several weeks, and the forecasted gas-weighted heating degree day forecast is at its highest mark yet, at 367 HDDs for April < April storage builds will be MUCH LOWER THAN THE 5-YEAR AVERAGE.
> The rally has extended beyond just the near-term tenors, with the Summer ’22, Winter ‘22/’23, and Summer ’23 strips all posting week-over-week gains of 67c, 64c, and 44c at $6.55, $6.62, $4.54, as of this morning
> Lower-48 dry gas production has strengthened lately and is at 94.5 Bcf/d
> U.S. gas inventories ended the withdrawal season at 1,382 Bcf (April 1), which is the second-lowest level to start an injection season since 2014, behind only 2019 < I now expect gas in storage to be more than 350 Bcf below the 5-year average at the end of April. If the trend continues (thanks to high demand for LNG exports), storage at the end of May could be 500 Bcf below the 5-year average.

Baker Hughes reports that oil and gas rigs increased by 16 last week, to 689
> Gas-directed rigs have been increasing at a rapid pace over the last few months. So far in 2022, gas-directed drilling rigs are up by 35 (33%) at 141
> The total number of drilling rigs is now at its highest level since March 2020 at 689
> AEGIS notes that the Haynesville basin has seen the largest increase in drilling activity, with total rigs up by 18, or 37%, at 67. This contrasts with small increases of 8 and 1 rig in the Marcellus and Utica regions < Because the Haynesville is the only basin with significant unfilled pipeline capacity and it is close to LNG export facilities. VERY BULLISH for Comstock Resources (CRK).

[dan_s]

The gassers are down a bit this morning just because the oil price is down. It makes no sense, so use weakness to load up on our "gassers" (AR, CRK, CTRA, EQT, RRC and SBOW). EQT is above my valuation, but my valuations are based on HH gas averaging $4.25 in 2022. EQT is the largest natural gas producer in the U.S. by a wide margin.

I will be adjusting the oil, gas and NGL prices used in my valuation models when I update each company's model after they release Q1 result. Even for the companies more heavily weighted to oil, the rising natural gas and NGL prices will more than offset the dip in oil prices.

China just might be overstating the Covid outbreak to put downward pressure on oil prices since they are a major importer of oil.

Oil prices are set on a global basis and there is a lot of headline "noise" out there that worries oil traders. However, demand for oil goes up each summer and Biden's scheme to drain the SPR is not going to be enough. OPEC+ is out of spare capacity and the sanctions on Russia will keep OPEC+ actual production well below the cartel's official quotas.

Natural gas and NGL prices are set by regional supply / demand. The North American gas market is tight and likely to get a lot tighter. No matter how many drilling rigs are available for drilling gas wells, the lack of pipeline capacity will limit how much gas supply can be brought online. I think we are one heat wave and/or one GOM hurricane away from $10/MMBtu ngas. NYMEX MAY22 contract for HH gas is now over $6.50.

See hurricane forecast here: https://www.weatherbell.com/premium/

[dan_s]

Closing prices
> Prompt-Month Henry Hub (May 22) was up $0.365 on the day, to settle at $6.643
> Prompt-Month WTI (May 22) was down $-3.97 on the day, to settle at $94.29