Oil & Gas Prices - June 9

[dan_s]

Opening Prices:
> WTI is down $0.32 to $121.79/bbl, and Brent is down $0.13 to $123.45/bbl.
> Natural gas is down -39.8c to $8.301/MMBtu.

Note from Raymond James Equity Research Team

This week's petroleum inventories update was bullish relative to consensus. “Big Three” petroleum inventories (crude, gasoline, distillates) fell by 3.5 MMBbls, versus consensus estimates calling for a draw of 1.1 MMBbls. Turning to crude, total inventories (including decline in the SPR) drew by 5.2 MMBbls, versus consensus calling for a draw of 2.5 MMBbls and a normal seasonal draw of 0.5 MMBbls. The SPR released 7.3 MMbls during the week, up from 5.4 MMbls the prior week, exceeding their 1Mbbl/d target volume. Refinery utilization rose to 94.2% from 92.6% the prior week. Total petroleum imports were 8.8 MMBbls per day, down from 9 MMBbls per day.

Crude has continued to surge, entering $120/bbl territory earlier this week and holding on tight. A confluence of factors is in the mix, EU oil sanctions are being evaluated by traders, while OPEC+ raising their output target seems unlikely at best to make a difference in global supplies. OPEC+ is 2.6 million bpd short of their current production target, assuming the member nations were able to make their quotas month over month. Only Saudi Arabia, Iraq, and UAE have any semblance of spare capacity, while the rest of the group is struggling to hike outputs in the slightest. Not to mention, any sort of nuclear deal with Iran still seems a long ways off. The demand side of the equation also has traders worried, as easing lockdowns in China could signal a return of normal demand levels in the country. The twelve-month futures strip is now standing at $107.39 and Brent at $109.76.
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AEGIS Notes
Oil

China's crude imports rose in May, with supplies from Russia reaching their highest level in nearly two years before the virus restrictions were eased (BBG)
> The nation imported nearly 10.84 MMBbl/d of crude in May, the highest level since January
> Seaborne flows from Russia increased to 1.16 MMBbl/d, the highest since June 2020 according to shipping analytics firm Vortexa
> Crude imports are projected to climb further in the coming months as China cautiously recovers from strict COVID restrictions, although Shanghai will close seven districts for mass testing on Saturday, indicating an uncertain outlook

U.S. gasoline stockpiles dropped by 812 MBbl last week to 218 MMBbl, their lowest seasonal level since 2014, according to EIA
> Distillate stockpiles, which include diesel and heating oil, rose by 2.6 MMBbl in the week to 109 MMBbl
> Meanwhile, consumption is increasing even as the retail price of gasoline, which is already at an all-time high, approaches $5/gal < American's like to complain about high gasoline prices, but gasoline prices are not high enough to cancel family vacations. In fact, higher airline ticket prices may actually cause more people to take driving vacations this summer.

Natural Gas

An explosion at Freeport LNG sent gas futures lower to close yesterday’s trading session
This morning futures have continued to sell off, and all strips are trading lower across the board
> Summer 22: -39c, at $8.268
> Winter 22/23: -34c, at $8.148
> Summer 23: -13c, at $5.669
> Winter 23/24: -12c, at $5.926

The explosion occurred at about 11:40 a.m. CT at the facility on Quintana Island, about 65 miles south of Houston, according to Freeport LNG Development LP. > The local area was not evacuated, but nearby plants were forced to shelter in place
> The company has said that it expects the facility to be down for a total of three weeks. Assuming the facility would flow near 2 Bcf/d, that would add around 42 Bcf into South Central storage and would be added to our end-of-season forecast of 3.34 Tcf
> AEGIS notes that unusual compressor trips have plagued Freeport LNG, and other unplanned events that have caused disruptions to flows, but this is the first where a facility is being brought entirely offline
> The downed facility should result in a looser U.S. natural gas market, temporarily, but a tighter international one, particularly for Europe, as countries rush to replace Russian gas ahead of winter

Battery shortage stymies U.S. switch to wind and solar power < The Bad New Deal just keeps getting worse!
> At least a dozen storage projects meant to support growing renewable energy supplies have been postponed, canceled, or renegotiated as labor and transport bottlenecks, soaring minerals prices and competition from the electric vehicle industry dampen supply, according to Reuters
> The slowdown in utility-scale battery installations threatens the ability of states to switch to renewable sources of electricity because storage is considered vital for sources prone to fluctuations due to the strength of the sun or wind
> AEGIS notes that 2022 was supposed to be a record year for renewable additions, and the cancellations bode well for gas demand for power generation this year and could lead to continued overperformance of the fuel in the power stack

[dan_s]

Closing Prices:
> Prompt-Month WTI (Jul 22) was down $-0.60 on the day, to settle at $121.51 < My Q2 forecast are based on WTI averaging $105/Bbl
> Prompt-Month Henry Hub (Jul 22) was up $0.264 on the day, to settle at $8.963 < My Q2 forecasts are based on HH gas averaging $7.50/MMBtu