Oil & Gas Prices - July 1

[dan_s]

Trading Economics:

WTI crude futures rose toward $82.50 per barrel on Monday morning, not far from a two-month high reached last week amid expectations that peak summer fuel demand will lead to a supply deficit and that OPEC+ will curb supply further in the third quarter.
> Recent US PCE inflation data also offered support, as a softer inflation print reinforced expectations for Federal Reserve rate cuts.
> Meanwhile, EIA data indicated that oil production and demand reached a four-month high in April.
> However, traders are monitoring how hurricanes may impact oil flows in the US, with the Atlantic hurricane season beginning over the weekend.
> Elsewhere, US, European, and Arab mediators are working to prevent cross-border clashes between Israel and Hezbollah from escalating into a broader Middle East conflict that could involve Iran.
MY TAKES:
> Per EIA's most recent STEO report, global demand for oil is now expected to exceed supply through Q1 2025.
> EIA's weekly reports should be bullish in July, which is one of the highest demand periods for transportation fuels.
> Tropical Storm activity in the Gulf of Mexico will impact weekly storage reports because oil tankers must stay away from troubled waters.
> Escalation of the war between Israel and Hezbollah is more likely after last week's debate between Biden & Trump. Iran knows that Trump will enforce the sanctions against Iran, so they see the remainder of Biden's term as a "window of opportunity".

Natural Gas
US natural gas futures fell to $2.5/MMBtu, the lowest in five weeks, due to increased production after companies like EQT and Chesapeake Energy ramped up drilling.
> In June, gas output in the Lower 48 states rose to 98.6 bcfd from a 25-month low of 98.1 bcfd in May. On the demand side, hotter-than-normal weather is projected through at least July 12, maintaining high gas consumption for air conditioning.
> Meanwhile, the most recent EIA report showed a 52 billion cubic feet increase in natural gas storage by US utilities in the week ending June 21, pushing levels to 20.6% above the seasonal average.
MY TAKES:
> The last nine weekly storage reports from EIA show inventory builds less than the 5-year average. I expect that trend to continue.
> Celsius Energy's forecast for the week ending June 28 is a build of 35 Bcf, which compares to the 5-year average of 58 Bcf.
> Henry Hub natural gas prices did average more than $2.25/mcf in Q2, which is the gas price my Q2 forecasts are based on. WTI oil prices also exceeded my forecast of $78/bbl in Q2. For Q3 my forecasts are based on $2.50/mcf and $80/bbl of WTI.
> Three new LNG export facilities should be fully operational by year-end 2024: New Fortress, Venture Capital at Plaquemines, Louisiana, and Train 3 at Cheniere's big facility in Corpus Christi, Texas. It is also important that the Freeport LNG export facility remain online.
> Exxon's Golden Pass LNG export facility is now expected to come online in Q2 2025. Train 1 in Q2 and Train 2 in Q4 2025.
> Based on the current schedule, U.S. LNG export capacity should go from 14.5 Bcfpd at the end of 2023, to 17.8 Bcfpd by the end of 2024, to 19.8 Bcfpd by the end of 2025. A 1.4 Bcfpd increase in pipeline capacity to Mexico is also expected in early 2025.

[dan_s]

From HFI Research:

For the week ending June 28, we expect a very large crude draw of 9.16 million bbls. This will be noticeably larger than the 5-year average draw of 2.3 million bbls.

As we've been saying in our weekly crude forecast updates, we are seeing quite a lot of volatility in crude exports week to week. As a result, this large crude draw is likely the result of a large backlog of ships that finally got loaded versus the previous week.

In addition, EIA still owes us roughly ~10 million bbls of unaccounted for crude. This will be returned in some form over the coming weeks. We wouldn't be surprised if EIA reports a larger draw.

WTI Closed at 83.39/bbl today.