Oil & Gas Prices - Jan 17

[dan_s]

Opening Prices:
> WTI is up $0.44 to $80.30/bbl, and Brent is up $0.40 to $85.68/bbl.
> Natural gas is up 27.6c to $3.695/MMBtu.

AEGIS Notes
Oil

Oil hits a two-week high amid expectations of a rebound in Chinese demand
> Feb ’23 WTI gains nearly 40c this morning to trade above $80/Bbl

China's economy grew 3% in 2022, exceeding some forecasts but still well below China’s official target of 5.5% for the year
> China's National Bureau of Statistics (NBS) reported slightly higher than expected GDP growth of 2.9% during 4Q22
> The continued growth came despite COVID-zero policies and lockdowns dampening demand

Aside from China, the growing expectation that the Federal Reserve is about to slow its aggressive streak of interest-rate hikes has supported oil prices. However, crude prices were pressured by a slight strengthening of the dollar from seven-month lows, making dollar-denominated oil more expensive for buyers holding foreign currencies.

OPEC says Chinese oil demand is expected to rebound in 2023 by 0.5 MMBbl/d (BBG)
> OPEC left its estimate of 2022 demand growth unchanged at 2.5 MMBbl/d. The outlook for 2023 was also unchanged at a growth of 2.2 MMBbl/d, with global oil demand expected to reach 101.8 MMBbl/d < Since U.S. oil production growth is only going to be only 500,000 bopd higher YOY in 2023 and 2024, where is all of the new supply going to come from???
> Additionally, OPEC Secretary General Al-Ghais expressed optimism about the crude market in an interview with Bloomberg today, saying he is "seeing signs of green" in the global economy and expects China's demand to increase by 0.5 MMBbl/d this year
> The report further added that minor upward adjustments to the 2023 forecast were made due to the expected better performance in China’s economy on the back of its reopening from COVID-19 restrictions, while other regions are expected to see slight declines due to economic challenges that are likely to weigh on oil demand.

Natural Gas

Natural gas prices are up 8.5% to $3.72
> The Summer ’23 strip is up 6c to $3.54, and the Winter ‘23/’24 strip is higher by 5c to $4.38

Weather forecasts for the Lower 48 have shifted cooler by 14 °F over the 1-15 day period
> The Rockies and Western regions have shifted significantly colder, with the Rockies forecast falling by 56 °F and the West regions forecast falling by 31.6 °F cumulatively over the 1-15 day period

Falling prices may limit natural gas production growth (Reuters)
> Government forecasts anticipate gas production growth of 2% in 2023, rising from an average of 98 Bcf/d in 2022 to 100.3 Bcf/d in 2023, and 102.3 Bcf/d in 2024
> As prices have fallen to $3.50 from a high of $7.11, some producers may be looking to reduce output in 2023 < All of our large-cap gassers (AR, CRK, EQT, RRC, CTRA) have the ability to adjust their drilling programs to meet market demand. SBOW also can shift their drilling program to oil if the economics are better. All of these companies have most of their leasehold HBP.
> Gas producer Chesapeake Energy said in November that it would reevaluate its production activity if prices fell below $4 and has now told shareholders it is looking to reduce activity levels

EU LNG price benchmark delayed by lack of data (Reuters)
> EU energy regulators planned to begin publishing a daily LNG price assessment last Friday, with the goal of creating a benchmark to use in the pricing of LNG contracts
> Regulators said only two out of nine total transactions were eligible on Friday, which is not sufficient to create a benchmark
> There were not enough transactions on Monday either, but regulators said they will continue to monitor the data and will release the price assessment when enough data is collected
MY TAKE: Natural gas prices in Asia and Europe will remain much higher than North American gas prices, so whatever they do in the EU will not lower demand for U.S. LNG. The floor price in Europe will stay above 1/6th the price of oil no matter what they do.

[dan_s]

Closing Prices:
> Prompt-Month WTI (Feb 23) was up $0.32 on the day, to settle at $80.18
> Prompt-Month Henry Hub (Feb 23) was up $0.167 on the day, to settle at $3.586

Trading Economics
"WTI crude futures rose more than 2% to above $81 per barrel, closing in on its highest level since early December, underpinned by hopes of a recovery in global demand. In its latest monthly report, OPEC sounded upbeat regarding the outlook for 2023, saying that demand for crude will rise by 2.22 million barrels per day (bpd), or 2.2%, lifted by more robust Chinese crude consumption and a recovery in economic activity among advanced economies. On the supply side, OPEC crude production rose in December, led by higher Nigerian output, despite the cartel's agreement to cut production to support the market. Keeping a lid on prices were persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks."

"US natural gas futures were trading around $3.70/MMBtu, recovering from an over 1-1/2-year low of $3.3 hit in the previous week as investors poured money back into the commodity amid prospects of a recovery in demand as temperatures should move towards more seasonal levels later this month. Still, any significant rebound is likely unsustainable if unseasonably warm weather sticks and domestic output continues to soar. US natural gas production is expected to grow more than 2% this year to a record daily average of 100.3 billion cubic feet, the Energy Information Administration said. Adding to the bearish tone, the Freeport LNG export plant in Texas, forced to go offline in June following a fire, again delayed the restart to the second half of January, leaving more supply on the domestic market. Traders worry the plant will only be back online during the first or second quarter due to the need for further work to satisfy federal regulators."