Oil & Gas Prices - July 20

[dan_s]

Opening Prices:
> WTI is up $0.26 to $75.61/bbl, and Brent is up $0.22 to $79.68/bbl.
> Natural gas is up 10.0c to $2.703/MMBtu.

AEGIS Notes
Oil

Oil trades higher as supply concerns offset demand worries
August ’23 WTI gains 26c this morning to trade around $75.61/Bbl
Equities trade higher, and the dollar strengthened relative to its recent lows

US crude inventories at Cushing, OK, fell by the most since October 2021, but demand for key refined products continued to decline
Despite the weak post-COVID recovery, China's June oil imports surged, driving stock levels near record highs
The expectation that the Fed is near the end of its rate-hike cycle as inflation cools supports prices

China imports record-high Russian crude in the first half of 2023 (Financial Times)
China's Russian crude imports hit an average of 2.13 MMBbl/d in H1 2023, making Russia its top supplier, surpassing Saudi Arabia
June saw another record, with Chinese imports of Russian crude reaching an average of 2.56 MMBbl/d, marking a 44% increase from June 2022 despite narrowing discounts on Russian oil
Despite weak domestic demand, total Chinese oil imports surged in June 2023, with a 45.3% Y-o-Y increase to reach the second-highest monthly figure ever recorded (12.7 MMBbl/d) as refiners continue to build inventories

Senate to vote on halting US SPR sales to China (Bloomberg)
The US Senate is set to vote on an amendment seeking to block China from buying oil from the US's SPR, now at its lowest level in 40 years
Initiated by Democratic Senator Joe Manchin and Republican Senator Ted Cruz, the bill mimics one already approved by the House, extending the sales ban to include Russia, North Korea, and Iran
The legislation has emerged amid criticisms against the Biden administration's handling of the SPR, and allegations of unauthorized transfers to China-owned enterprises
However, the White House maintains that SPR oil sales are legally required to go to the highest bidder, irrespective of nationality, and last year's release was to mitigate Ukraine conflict-related price surges

Natural Gas

Natural gas prices are up 5.3% to $2.74, a multi-week high
The Winter ‘23/’24 strip is higher by 6.4c to $3.52, and the Summer ’24 strip is up 5.7c to $3.28
Weather forecasts shifted warmer in the Midwest and Northeast but cooler in the South Central
Lower 48 forecasts indicate temperatures well above the 10-year average over the next two weeks
The warmer temperatures will lead to a boost in gas demand from the power sector, with total gas demand expected to rise to 78.1 Bcf/d from 75 Bcf/d over the next two weeks
Production has rebounded slightly today but is expected to fall again tomorrow due to additional maintenance on Transcontinental’s Leidy Line in the Northeast

Cheniere looking to expand pipeline infrastructure (Reuters)
Cheniere will need to source additional gas to reach its planned Stage 5 capacity, with the company saying, "We will likely build a pipeline to where we can access other pipelines. That will get us Haynesville gas, any additional Marcellus gas that will come down, mid-continent, Permian, as well as Eagleford as it continues to be developed,"
The gas exporter currently sources about 7.5 Bcf/d across 26 different pipelines for its LNG facilities in Louisiana and Texas
The expansion will be adjacent to the Sabine pass facility and will increase capacity by 2.1 Bcf/d, although the project does not yet have funding

[ChuckGeb]

Why is the Senate voting now to ban sales of SPR to China? I thought the SPR releases had ended. Either this is too little too late or maybe there is something else going on here??? China's build while their economy is weak is a bit worrisome; what's up with that? Maybe they like to invest their monetary reserves in crude rather than treasuries!!! Or something else.

[dan_s]

China likes to buy low and sell high. They are smart to buy as much of that cheap Russian oil as they can while it lasts. I expect Russian oil production to go on steady decline since they are not spending much on oilfield services.

[Fraser921]

>The US Senate is set to vote on an amendment seeking to block China from buying oil from the US's SPR, now at its lowest level in 40 years

Insanity, totally useless politicians

[dan_s]

Closing Prices:
> Prompt-Month WTI (Aug 23) was up $0.28 on the day, to settle at $75.63
> Prompt-Month Henry Hub (Aug 23) was up $0.154 on the day, to settle at $2.757

Looks like natural gas will top the prices that I am using in my forecast/valuation models for Q3 and Q4, but it will take a cold December to keep it over $3.00 in 1H 2024. For now, stay overweight on the upstream companies that get most of their revenues from oil sales.

If we have a normal 2023/2024 winter heating season, the 2nd half of 2024 should turn bullish for the gassers.