Oil & Gas Prices - May 10

[dan_s]

Opening Prices:
> WTI is down $0.22 to $102.87/bbl, and Brent is down $0.48 to $105.46/bbl. < WTI up to $103.06 at the time of this post.
> Natural gas is down -48.1c to $6.545/MMBtu. < HH JUN22 contract up to $7.30 at the time of this post.

AEGIS Notes
Crude Oil

Oil fell to its lowest level since March
> WTI futures saw a nearly 6% slump on Monday to $101
> Chinese COVID-19 lockdowns persist and are threatening demand in addition to concerns of increasing recession risks and a strong US Dollar

Hungarian demands stall the EU’s efforts to ban Russian oil
> The Hungarian Prime Minister’s talk with the EU heads made progress but didn’t reach a breakthrough
> “We made progress, but further work is needed.” said EU Commission President Ursula von der Leyen
> Further talks are due on Tuesday and unanimous approval of all 27 member states is required for the EU sanctions
> EU to soften sanctions by not banning EU owned vessels shipping Russian crude (BBG)

The oil ministers of Saudi Arabia and the UAE have warned that underinvestment is reducing spare capacity in all energy sectors
> Fuel costs have risen to a new high in the United States, prompting these remarks
> Average gasoline and diesel prices in the US hit a record-high $4.374/gal and $5.550/ gal this week
> Both the nation's ministers, however, stated that the market is already balanced and that OPEC+ does not need to boost its monthly production increases of 400k MBbl/d < Plus, the can't. OPEC+ production has been below quotas for 7 months in a row.

Natural Gas

Natural gas futures are down by another 5%, near $6.545 < Bounced quickly back to over $7.00.
> Prompt-month (June ’22) gas is down by around $1.50 or 19% from Friday’s settlement of $8.04
> Gas futures have given back quite a bit in the front of the curve, but beyond the Winter ‘22/’23 strip, prices have been fairly insulated. The Winter ‘22/’23, Summer ‘23, Winter ‘23/’24 strip prices are down by $1.13, $0.35, $0.32 at $6.52, $4.30, $4.65, respectively
> This morning’s pipeline nominations show lower-48 dry gas production is down by around 1.6 Bcf/d at 94.46 Bcf/d, or 1.8 Bcf/d removed from its near year-to-date high of 96.25 on Saturday, May 7
> Natural gas-fired power generation has also been very strong, even setting a seasonal record of 29.85 Bcf/d for power generation on Wednesday, May 4. The limited availability of gas-to-coal switching, and underperforming hydropower, have led to an increased need for gas for power generation

Production is around 1.7 Bcf/d higher year-over-year, with the Haynesville and Permian basins accounting for the increases
> South Central dry gas production is up by 4 Bcf/d year-over-year, while the Northeast, Rockies, and Gulf of Mexico regions are down by 0.27, 1.463, and 0.48 Bcf/d, respectively
> AEGIS notes that most of the production growth has come from the Haynesville and Permian basins because of pipeline capacity, and its proximity to growing demand from US LNG infrastructure
> This is why gas prices will stay high: Also, the 1.7 Bcf/d of production growth falls short of the year-over-year demand increases, which means the supply-demand backdrop will likely be tighter this summer, barring more growth.
> Early estimates suggest that U.S. industrial demand is up by 1 Bcf/d year-over-year, while LNG demand is up by around 2 Bcf/d year-over-year (0.7 Bcf/d from Sabine Pass Train 6 & 1.3 Bcf/d from Calcasieu Pass)
> Refilling Storage is not "Optional": Natural gas going to storage needs to exceed the 5-year average volumes going to storage by more than 1.5 Bcf per day from May to October in order to get the amount of gas in storage back to a safe level heading into the next winter heating season.

[mikelp]

Dan

watching the natural gas numbers closely, thanks for the updates...

what are the projections for this week's EIA natural gas storage report?

[dan_s]

I have not seen what the "experts" are expecting for the next ngas storage report.

FWIW my "guess" is a build of 70 Bcf for the week ending May 6, which would be 13 Bcf below the 5-year average build for the week.

At the end of April ngas storage was 306 Bcf below the 5-year average. I am guessing that the deficit will grow to 340 to 360 Bcf during May.

This website is helpful: https://www.celsiusenergy.net/p/intraday-weather.html
"As of 3:00 PM ET on May 10, the population-weighted nationwide temperature is 76.4°F which is 1.5°F warmer than yesterday and 4.5°F warmer than the historical average. Accumulated Natural Gas-Weighted Degree Days (GWDDs) through 3:00 PM EDT tally 4.4 GWDDs which is 0.3 GWDDs less than yesterday through the same time but 1.3 GWDDs greater than average. This suggests an above-average contribution of temperature to natural gas demand."

[dan_s]

Closing Prices on May 10
> Prompt-Month WTI (Jun 22) was down $-3.33 on the day, to settle at $99.76
> Prompt-Month Henry Hub (Jun 22) was up $0.359 on the day, to settle at $7.385

Trading Economic
"WTI crude futures tumbled over 3% to below $100-per-barrel, a level not seen in two weeks, dragged down by a stronger dollar and lingering concerns about weakening global demand, particularly from top consumer China due to tightening lockdowns. The latest customs data showed that crude imports by the world's second-largest economy fell 4.8% in the first four months of 2022 compared with last year. Pressuring prices further were growing worries that Europe would face a recession, exacerbating concerns about slowing global demand. Meanwhile, European Union countries struggle to agree on a ban on Russian oil. Some countries, such as Hungary and Slovakia, are concerned about the repercussions of such a move on their economies." - Chicken Lickin has the oil traders running for cover. Just remember that OECD Petroleum inventories are still on decline.

"US natural gas futures bounced back to $7.3 per million British thermal units after briefly hitting a two-week low of $6.4 per million British thermal units, as traders continued to monitor supply and demand prospects amid high volatility. Demand from LNG exporting facilities may further rise on further supply disruptions in Europe after Ukraine's grid operator warned that flows through its Sokhranivka pipeline would stop on Wednesday morning due to disrupting actions from the Kremlin's forces. On the other hand, data showed US output rebounded slightly, averaging 94.3 billion cubic feet a day at the start of the week, up from an average of 93.2 bcfd in the first week of May. Also, the Spring weather could help utilities inject more fuel into storage, which currently sits at 17% below historic levels." - "Spring" is going to become "Hot Summer" within a few weeks. That's when it could get real interesting. What if we see draws from storage in July/August?"

This will impact natural gas prices: "Newcastle coal futures, the benchmark for top consuming region Asia, consolidated above the $370-per-tonne mark and more than doubled in value since November 2021, supported by continued robust demand against a tightening market backdrop. Along with increasing demand for power generation with a resumption in economic activity after the coronavirus-induced slump, soaring natural gas prices in Europe and Asia in late 2021 boosted coal consumption. On top of that, Russia's invasion of Ukraine and the unprecedented economic sanctions, including the EU's ban on coal imports from Russia, have thrown the global energy market into chaos. At the same time, it also promoted a change in trade flows as the EU and Japan sought alternative supplies from Australia, Colombia, Indonesia, South Africa, and the United States. Still, soaring production from top consumers China and India should ease a global supply deficit and help cool down prices in the long term." < If coal stays over $350/ton there will be no gas-to-coal fuel switching for power generation unless natural gas goes over $10/MMBtu in the U.S.