Oil & Gas Prices - May 9

[dan_s]

Trading Economics:
WTI Oil
"WTI crude futures rose above $79 per barrel on Thursday, extending gains from the previous session as official data showed a decline in US crude stockpiles, signaling tighter supply. EIA data showed that US crude inventories fell by 1.361 million barrels last week, reversing from a 7.265 million barrel jump in the preceding period as refinery activity increased. The outlook for energy demand was also lifted by growing expectations that the US Federal Reserve will cut interest rates in the second half of this year. Still, oil prices remained close to two-month lows as geopolitical tensions eased in the Middle East after Israel and Iran managed to avoid a wider conflict and hopes for a ceasefire in Gaza grew. The outlook for OPEC+ production policy also remains highly uncertain ahead of the group’s policy meeting on June 1."
MY TAKES:
> Peace in the Middle East isn't happening anytime soon. Hamas cannot be trusted to honor any agreement and Israel wants to kill all of them.
> OPEC+ is likely to extent the supply cuts through year-end.
> The Fed is not going to cut interest rates because inflation is not coming down as long as Team Biden keeps spending money we don't have.

Natural Gas
"US natural gas futures surged over 5% to surpass $2.3/MMBtu on Thursday, marking their highest level in almost four months. This rally was fueled by a smaller-than-expected storage build, heightening anticipation for robust demand in the forthcoming fortnight alongside a decline in production. US utilities added 79 billion cubic feet (bcf) of gas into storage last week, compared with market expectations of an 87 bcf increase. Simultaneously, output has declined by approximately 2.3 billion cubic feet per day over the past six days, reaching a preliminary 16-week low of 95.5 bcfd on Thursday. Coinciding with this, gas flows to LNG export plant in Freeport is anticipated to reach a 16-week peak of 1.7 bcfd, a significant increase from the 1.3 bcfd average of the past week and the 0.4 bcfd recorded in April."
MY TAKES:
> Hot and humid in Texas = increasing demand for power generation. I've already seen reports that ERCOT wants us to turn up the thermostats to reduce AC demand. We need a dozen more natural gas fired power plants, just in Texas.
> Freeport is back online and the new LNG export facility at Plaquemines Parish, LA should be ramping up in mid-Q3.
> If the weekly storage reports continue to show weekly builds smaller than the 5-year average, HH ngas should be over $2.50 by end of July.

Notes from HFI Research:
Natural gas prices are surging as of late as natural gas fundamentals continue to tighten. As we wrote earlier this week via a tweet, Lower 48 gas production is dropping meaningfully on the back of pipeline maintenance in Northeast and Texas. While the maintenance is expected to be concluded by the end of this week, low production levels have meaningfully tightened balances.

Looking at lower 48 gas production, we are seeing production fall below 2022 levels for this time of the year. Our expectation is for production to start rebounding back to ~99 Bcf/d by next week, but the market is now trying to figure out at what price level we start to see a response in production.

As we wrote in our NGF last week, natural gas producers currently have a lot of idled production sitting on the sidelines that could be quickly brought online (4 to 6 weeks) depending on natural gas prices.

July NYMEX contracts are now trading above $2.5/MMBtu, so this will be the first test of discipline from producers.
Source: CME

Improvement in Fundamentals
If you look at our storage projections for the next 3-reports, you will see that we have an implied deficit of -1.9 Bcf/d.

Most of the deficit is coming from the low production levels we are seeing, but we are also seeing marginal improvement on the demand side.

Looking at the trailing 7-day average demand growth y-o-y, we are up ~1 Bcf/d, while total gas supplies are down 2.8 Bcf/d y-o-y (7-day average).

And over the past few months, we have seen a remarkable improvement in implied balance. We went from a surplus of ~4 Bcf/d in early February to a deficit of 3.8 Bcf/d. That's an improvement of 7.8 Bcf/d...