Oil & Gas Prices - April 13

[dan_s]

I will be updating the valuation models for all of our "gassers" today based on the assumption that HH natural gas averages $6.00 during Q2&Q3, $6.50 for Q4 and $5.00 for 2023. I now have confidence in my forecast that the structural change in the North American natural gas market will take several years to fix. I will discuss this in my live webinar tomorrow at 10:30AM CT. You must register for the webinar on the EPG website home page.
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Opening Prices:
> WTI is up $1.17 to $101.77/bbl, and Brent is up $1.49 to $106.13/bbl.
> Natural gas is up 20.4c to $6.884/MMBtu.

AEGIS Notes
Oil

My comments are in blue.

Oil prices rallied back over $100/Bbl on Tuesday, surging 6% in the previous session
> The rise came as China signaled that it’s likely to use monetary policy to stimulate growth, and Putin said talks with Ukraine are “at a dead end”
> In its monthly report, the International Energy Agency (IEA) trimmed its estimates of global crude demand after China reimposed lockdowns to contain the recent Covid-19 outbreak < IEA has a long history of understating demand for oil.

OPEC forecasts that Russia’s invasion of Ukraine will curtail both world oil supply and demand (OPEC MOMR)
> The neutral view suggests the group will stick to modest supply hikes (BBG) < The cartel has no choice, they are at peak production and most of the OPEC members are actually on decline. The "easy supplies" are all back online. Only Saudi Arabia and IEA have more upside, but they will need to drill more wells and infrastructure. OPEC+ actual production has been below the official quotas for six months.
> OPEC cut forecasts for global oil consumption in 2022 by 410 MBbl/d, according to its latest monthly report
> The group also lowered its projection for supplies outside its membership by 330 MBbl/d

Vitol Group will stop trading Russian crude by year-end (BBG)
The world’s largest independent oil trader said volumes of Russian oil handled by the company “will diminish significantly in the second quarter as current term contractual obligations decline.” < Oil is over $100/bbl and we still have not seen a significant decline in amount of Russian oil coming to the physical market. It is going to steadily decline starting at the end of Q2. U.S. and OECD petroleum inventories have been on decline for 21 months. The inventory declines will steepen and draws from strategic petroleum reserves will be necessary to keep western economies on life support. This inflation is not "transitory".

Natural Gas

Gas futures have continued to strengthen despite warmer weather forecasts. The prompt-month (May ’22) contract is up by 20.4c, near $6.884
> The forecasted gas-weighted heating degree day total fell by 11 HDDs to 348 HDDs, its lowest mark since April 5 < If "Global Warming" is real, why are we still talking about "heating degree days" in mid-April???
> Production is also down by -0.95 Bcf/d, currently around 93 Bcf/d < Without more pipeline access it will be difficult for supply to catch up to demand.
> LNG feedgas demand is back up by another 1 Bcf/d to 12.5 Bcf/d < This is why.
> Flows to Calcasieu Pass have stalled in between 700-800 MMcf/d over the last several weeks, as the pace of commissioning seems to have slowed down

Europe scrambles to secure floating LNG storage capacity
> According to the supply deal with the United States, Europe is aiming to replace 155 bcm of Russian gas imports by 2030, which translates to around 15 Bcf/d
> European countries are looking for any way they can to boost gas supplies. It only has 176 MM metric tons/year (23 Bcf/d) of total regasification capacity, with much of it located in Spain, which lacks pipeline infrastructure to move the rest of the gas to Europe < Thanks to the Green Bad Deal.
> Leasing rates for floating storage regasification units (FSRU) have increased by 50% since the beginning of the Russian incursion into Ukraine, with some deals being reached at $150k/day - $200k/day

[dan_s]

From Phil Flynn 4/13 AM
"Oil prices dipped after the International Energy Agency warned that due to the Chinese covid-19 lockdowns, they reduced their demand forecast for 2022 by 260,000 barrels a day to 99.4 million barrels of oil a day. Yet IEA also says that global oil inventories have decreased for 14 consecutive months, with February stocks 714 mb below the end-2020 level. In February, OECD stocks fell by 42.2mb to 2611mb, nearly double the seasonal trend. Preliminary data show a build in OECD stocks of 8.8mb for March." < Probably because of SPR draws and milder weather, so less demand for home heating oil.

[dan_s]

Closing Prices:
> Prompt-Month WTI (May 22) was up $3.65 on the day, to settle at $104.25
> Prompt-Month Henry Hub (May 22) was up $0.317 on the day, to settle at $6.997

Did any of you think it possible that we'd see the HH natural gas futures contract for May (the lowest demand month of the year) trading for $7/MMBtu???

If the deficit to the 5-year average storage level keeps growing thru May, we may see the DEC22 contract going over $10.

[dan_s]

Did any of you expect Comstock Resources (CRK) to be the Sweet 16's first "double of the year"????

CRK closed on April 13 at $16.39, up 102.6% YTD. My current valuation is $26.50.

[uberCOAT]

Dan, I think CRK stock price can trade much higher as we move into 2023 - ~$30-~$40 range. If prices hit double digits in Q4 / Q1/2023, they will make a killing.

[dan_s]

I am going to highlight the "gassers" in my live webinar on April 14 at 10:30AM CT.

Comstock Resources (CRK) is going to be my "Pick of the Week".

During each weekly podcast, I now plan to highlight one of our model portfolio companies.

You must register on the EPG home page if you want to attend the live event.
Here is your chance to ask me questions about any of the companies that I follow.