Oil & Gas Prices - June 21

[dan_s]

Opening Prices:
> WTI is up $2.22 to $111.78/bbl, and Brent is up $2.75 to $115.87/bbl.
> Natural gas is down -24.4c to $6.7/MMBtu.

As discussed in my Saturday podcast, crude oil prices are set by global supply/demand fundamentals and there is no fundamental reason for last week's decline in oil prices. This world's oil supply is TIGHT and refined product inventories are DANGEROUSLY LOW, especially diesel.
Natural gas is a much different market. Ngas prices are set by regional fundamentals. The North American region's natural gas market is tight, but the temporary shutdown of the Freeport LNG export facility does lower demand by ~2 Bcf per day and reduces the concern that utilities will not be able to refill storage prior to the next winter heating season. Weather (HOT summer and hurricanes) will now have more impact on natural gas prices.

AEGIS Notes
Oil

Libya's oil output has increased during the past week to 700-800 MBbl/d, said Energy Minister Oun after he announced on June 13 that production was down to 100-200 MBbl/d
> However, production is down from last year’s average of 1.2 MMBbl/d
> Libya's production has been unstable since mid-2020 (whenever they last returned production) due to rising political tension and protests at energy fields and ports

Russia surpasses Saudi to be the top crude supplier to China in May
> Russian oil imports from ports in Europe and the Far East, as well as supplies pumped through the East Siberia Pacific Ocean pipeline, reached a daily total of roughly 1.98 MMBbl/d, 55% up year-on-year, according to Chinese customs data
> This continues to indicate that Moscow is able to find buyers for its oil despite western sanctions, though it has had to slash prices

Natural Gas

Exxon joins other supermajors in the North Field East expansion, the world's largest LNG project
> ExxonMobil (NYSE: XOM) said that it would take a 25% interest in the 32 mtpa (4.2 Bcf/d) North Field East expansion project
> Oil majors have been bidding for the stakes in the four-train project that is expected to ramp up Qatar's liquefaction capacity from 77 mtpa (10.0 Bcf/d) to 126 mtpa (16.5 Bcf/d) by 2027
> According to Reuters, China's national oil majors are in advanced talks with Qatar to invest in the North Field East expansion and buy the fuel under long-term offtake contracts. It would be the first such agreement between the two countries

Europe prepares to shift to coal to ease the gas supply crunch facing the continent < I hope they got AOC's approval
> Other countries such as Italy, Austria, and the Netherlands have all signaled that coal-fired power plants could help see the continent through a crisis that has sent gas prices surging
> The Dutch government said it would remove a cap on production at coal-fired power plants and activate the first phase of an energy crisis plan
> Denmark also initiated the first step of an emergency gas plan due to Russian supply uncertainty
> Russia slashed flows on its Nord Stream 1 natural gas pipeline to about 40% of capacity, citing inventory and supply chain issues in Canada as the cause, which many European officials have refuted. The reduced gas imports have made it increasingly challenging to get inventories to an adequate level ahead of winter < Germans may be burning furniture for space heating if Europe has a cold winter.
> AEGIS notes that the increased use of coal in Europe could impact the U.S. in terms of coal exports. U.S. coal supplies are already in short supply, which is why gas-to-coal switching has not taken place so far < Coal is now close to $400/ton making gas-to-coal fuel switching sub-economic for all utilities unless ngas goes over $12/MMBtu.

[dan_s]

Closing Prices:
> Prompt-Month WTI (Jul 22) was up $1.09 on the day, to settle at $110.65. It expired today. AUG22 is now the "Front Month", it was up $1.75 today to settle at $109.74.
> Prompt-Month Henry Hub (Jul 22) was down $-0.136 on the day, to settle at $6.808.

I would prefer to see WTI stabilize for a few weeks around $110/bbl rather than big swings. The Sweet 16 share prices do not reflect current oil & gas prices. As posted earlier, Morgan Stanley's commodity experts think current share prices reflect oil in the $60 to $65 range.