Oil & Gas Prices - Jan 5

[dan_s]

Opening Prices:
> WTI is up $1.26 to $74.10/bbl, and Brent is up $1.33 to $79.17/bbl.
> Natural gas is down -25.8c to $3.914/MMBtu.

AEGIS Notes
Oil

Oil slightly rebounds after a two-day slide of more than $7/Bbl
> Feb ’23 WTI gains nearly $1 this morning to trade around $74/Bbl
> The oil market continues to struggle with low levels of participation, with open interest near multi-year lows, making prices prone to significant intraday volatility < Confirms my belief that "lack of liquidity" is behind this recent selloff + FEAR and the NOISE from China.

The surge in Covid-19 cases across China dampens near-term demand, clouding the optimism over a demand boom from the world's largest oil importer
> However, China’s road traffic levels climbed by 33% last week after touching lows two weeks ago, according to Bloomberg data
> This could be short-lived, depending on how the nation handles the inevitable surge in virus cases that will accompany the reopening

Colonial Pipeline Co. halted its Line 3 refined products pipeline on Wednesday due to a leak found near the delivery station at Danville, VA (BBG)
> The pipeline transports over 0.8 MMBbl/d of refined products, such as distillates and gasoline, to the NY Harbor market and is expected to restart on Saturday after unscheduled maintenance
> The current pipeline shutdown is the second disruption since the Keystone outage last month, and it comes after the cyberattack on Colonial in 2021

Saudi Arabia continued to implement the OPEC+ agreement by maintaining its oil export levels last month (BBG)
> The nation shipped approximately 7.21 MMBbl/d in December, unchanged from November levels, said an official familiar with the matter
> The kingdom produced just below its OPEC+ target of 10.48 MMBbl/d, added the official
> After the sharp decline in oil prices, OPEC+ may be on alert. If the price of oil declines even further, the group may consider making another preemptive cut

Natural Gas

Natural gas prices are lower by 7% to $3.87 this morning
> The Summer ’23 strip is down 18c to $3.70, and the Winter ‘23/’24 strip is lower by 14c to $4.53
> Weather forecasts have shifted cooler, with the Lower 48 forecast for the next 1-15 days falling by 8.4 °F and the Midwest forecast falling by 23.6 °F over the same period

The EIA will release its weekly natural gas storage report today
> The median estimate is for a withdrawal of 240 Bcf, according to the Bloomberg survey
> A 240 Bcf withdrawal would be 134 Bcf larger than the five-year average withdrawal

US to regain position as top LNG exporter (Reuters)
> In 2022 the US was the second largest exporter of LNG, with Australia in the first place and Qatar in third
> The US would have been the top exporter in 2022 if the 2.1 Bcf/d Freeport LNG facility had not gone offline in June following an explosion
> 7.2 Bcf/d or 69% of total US exports were shipped to Europe, while just 31% of cargoes were shipped to Asia
> With no new export plants planned in Australia and Qatar until 2025 and 2026, the US should maintain its position as the leading LNG exporter

UGI to invest in additional renewable natural gas projects
< According to a company press release, UGI will be developing two additional RNG projects in South Dakota
> The projects turn animal manure waste from dairy farms into pipeline-quality natural gas
> Phase one of the project is under construction and anticipated to be online in 2023, while the second and third projects are expected to be in service in 2024
> The project will be able to generate 0.5 Bcf per year once it is fully operational < Close to zero impact on the U.S. natural gas market that is now over 100 BCF per day.

[dan_s]

"NOISE" is the only reason for today's oil price. U.S. and all OECD countries' petroleum inventories are much lower than the price would indicate.

OECD Petroleum Inventories (crude oil + refined products) are currently just under 28 Days of Consumption only because consumption has declined. After Q1 (regardless of what happens in China), consumption is expected to increase. Goldman Sachs and Raymond James are forecasting that OECD Days of Consumption will go on steady decline after Q1 and WTI will go over $100/bbl within six months.

Keep in mind that Russian oil exports are likely to steadily decline this year.