Oil & Gas Prices - Dec 23

[dan_s]

Happy Christmas Eve Eve to all of you.

Opening Prices:
> WTI is up $2.08 to $79.57/bbl, and Brent is up $1.96 to $82.94/bbl.
> Natural gas is down -14.2c to $4.857/MMBtu.

AEGIS Notes
Oil

Oil set to post a weekly gain amid expectations of a drop in Russian crude supply
> Feb '23 WTI gained nearly $2 this morning to trade above $79/Bbl
> Russia threatens to cut production in response to the $60/Bbl EU-G7 price cap
> However, demand uncertainty persists as China struggles with surging COVID infections after abandoning its Covid-zero policy
> AEGIS notes that China's swift reversal of its Covid-zero policy has given rise to optimism for the long-term demand, although the near-term forecast remains uncertain

Another notable event is the first significant winter storm of the year that has been affecting large parts of the U.S., canceling thousands of flights and possibly interfering with motorists' holiday travel plans
> This might likely lead to decreased demand for gasoline and jet fuel, but it may also increase demand for heating oil, making it difficult to estimate the overall impact at this time

Russia makes a production cut threat in 1Q2023 in retaliation to the $60/Bbl EU-G7 price cap (BBG)
> Moscow may cut its oil production by 0.5 to 0.7 MMBbl/d in reaction to the G7 nations' price cap on Russian crude exports, said Russian Deputy Prime Minister Alexander Novak in an interview with the Rossiya-24 TV channel
> Additionally, Russian President Vladimir Putin told reporters he would sign a decree on the nation's response to the price cap on its crude on Monday or Tuesday
> The price cap is "a path toward destruction of global energy," and there would be "preventative measures," added Putin
> Analysts estimate a loss of 0.5 to 1.5 MMBbl/d of Russian output due to the sanctions and the price cap
MY TAKE: The G7 oil price cap will hurt Europe more than Russia. Russia will sell less oil, but get a higher price for the volume they do sell. Europe will have less supply, higher fuel prices and eventually fuel rationing. Just maybe some of these smart people in G7 should think about negotiating a settlement to the war in Ukraine instead of sending more and more weapons to prolong the war.

Natural Gas

Natural gas prices are down 3% in the prompt month, trading around $4.85
> Weather forecasts have warmed materially, with the Lower 48 forecast gaining 22 °F in the 6-15 day period
> The forecast for the Midwest region has warmed by a total of 40 °F over the same period and the Northeast by 25 °F
Remember that the same people that can't forecast the weather two weeks from now, are the same people that tell us year-after-year that Global Warming is going to kill all of us.

According to a press release from Freeport LNG this morning, they have pushed the restart of the 2 Bcf/d facilities to mid-January from the end of December

Gas production falls amid freezing temperatures (BBG)
> US natural gas production may fall the most since last winter, as cold weather leads to wells being shut-in
> According to preliminary pipeline nominations, gas production has fallen from about 100Bcf/d to 96 Bcf/d

Winter storm threatens to disrupt LNG supply (BBG)
> As freezing conditions spread across the US, some waterway services have been suspended, potentially impacting LNG export cargoes
> Pilot services at the Sabine-Neches Waterway, which serves the Sabine Pass LNG export facility, may be impacted
> The port of Corpus Christi has suspended vessel boardings due to the weather, which could affect the Corpus Christi LNG terminal

[dan_s]

Trading Economics:
"Brent crude futures rose 2.5% to $83 per barrel on Friday, on the prospect of lower crude supplies from Russia. Russia’s Baltic oil exports are predicted to decline by 20% month-on-month in December and the country may reduce output by 500,000 to 700,000 barrels a day in early 2023 after the European Union and G7 nations imposed sanctions and a price cap on Russian crude. The oil market is set to gain for the second straight week, on signs of tightening US crude supplies and an improving demand outlook in top crude importer China. Latest data showed that US crude inventories fell by 5.89 million barrels last week, much more than market forecasts for a 1.66 million barrel drop. Still, investors remain worried about surging Covid cases in China that could disrupt economic activities, as well as the prospect of a global economic slowdown next year."

IEA and OPEC are forecasting oil demand growth of 1.7 to 2.2 million barrels per day, with both assuming a mild recession. I sure don't know where that much new supply will come from. US oil production will decline in Q1 and without Russian supply growth OPEC+ has very little chance of being able to increase production.

Without more draws from the SPR, U.S. and OECD Petroleum Inventories will continue to decline.

[dan_s]

Closing Prices:
> Prompt-Month WTI (Feb 23) was up $2.07 on the day, to settle at $79.56
> Prompt-Month Henry Hub (Jan 23) was up $0.080 on the day, to settle at $5.079

Check the EPG website for my Saturday podcast. I will be on my way to Dallas for Christmas.