Oil & Gas Prices - May 29
Posted: Fri May 29, 2020 7:51 am
Opening Prices:
> WTI is down 69c to $33.02/Bbl, and Brent is down 69c to $34.60/Bbl.
> Natural gas is up 1.4c to $1.841/MMBtu.
Closing Prices:
> WTI prompt month (JUL 20) was up $1.78 on the day, to settle at $35.49/Bbl.
> NG prompt month (JUL 20) was up $0.022 on the day, to settle at $1.849/MMBtu
I don't know what the oil traders had for lunch, but the short covering caused WTI to rise over $2/bbl during the afternoon trading. The active rig count keeps falling, although at a slower pace. Eventually, it will stop falling just because it literally can't go below zero.
Raymond James 5/29/2020: Slowly and not very steadily, oil prices have been working their way from the epic trough set in mid-April. There are three key drivers for this bounce.
> First, the unprecedentedly large OPEC+Russia deal has been in effect since May 1. Compliance in the first month has been stronger than expected, though we predict cuts will ultimately be less ambitious than what has been pledged.
> Second, price-related production shut-ins in the U.S. and elsewhere have also been needle-moving.
> Third, and most importantly, the COVID-related disruptions in transportation and economic activity continue to subside. Having been tracking economic reopening policies in 80 countries, here is the key datapoint: of the 4.1 billion people who have been under a lockdown at some point since January, 3.8 billion (93%) already have some reopening, even if the vast majority is only partial (by sector or by region). This point is confirmed by traffic congestion data, as well as commentary by refiners. While it would not be realistic for demand to get back to pre-COVID levels until 2022, we think that the impact peaked in April, with June set to be better than May, 3Q better than 2Q, and 4Q better than 3Q. With the worst of the demand shock in the rearview, and also bearing in mind the nuances around contract expirations, the 12-month futures strip has improved substantially ($34.90/Bbl for WTI and $37.65/Bbl for Brent) but has moved from contango to a nearly flat profile.
Cowen Equity Research 5/29/2020
■ Our updated macro assumptions now reflect a bottom in U.S. rig count and completion
activity toward the end of 2Q20. Previously, we expected a U.S. activity bottom around
year-end 2020/early 2021. As a result, we now see the U.S. rig count bottoming at an
average of 283 in 3Q20 vs our prior assumption of 230 in 2021, and now a recovery to < Keep in mind that we need ~800 rigs drilling for oil in U.S. to hold production flat.
581 in 2024 from 477 previously. Internationally, the rig count is tracking below our
model, and we have lowered our expectations accordingly, but continue to see a recovery
to above 2019 levels by 2024 as the U.S. cedes share of global oil production to OPEC and
other International producers.
The outlook for oil has improved since our early April update, most notably with OPEC+’s
9.7MM bpd cut and what appears to be a strong level of compliance, at least for now,
and some hope of extending the current level of cuts beyond June. Additionally,
voluntary shut-ins (though economically driven) have been significant with estimates for
U.S. shut-ins rating from ~1.3 to 2MM bpd, this is before any decline in production
resulting from lower OFS activity. There is some growing concern of excess supply when
shut-ins are turned back on, but at a high level the supply side is looking much better
than it did 30-60 days ago.
At the same time the demand picture has improved with an easing of COVID-19
lockdowns, however we note the magnitude of recovery is probably lower than some of
the more bullish expectations. Looking at DOE motor gasoline products supplied,
volumes have improved, but are still ~20% below the beginning of the year.
> WTI is down 69c to $33.02/Bbl, and Brent is down 69c to $34.60/Bbl.
> Natural gas is up 1.4c to $1.841/MMBtu.
Closing Prices:
> WTI prompt month (JUL 20) was up $1.78 on the day, to settle at $35.49/Bbl.
> NG prompt month (JUL 20) was up $0.022 on the day, to settle at $1.849/MMBtu
I don't know what the oil traders had for lunch, but the short covering caused WTI to rise over $2/bbl during the afternoon trading. The active rig count keeps falling, although at a slower pace. Eventually, it will stop falling just because it literally can't go below zero.
Raymond James 5/29/2020: Slowly and not very steadily, oil prices have been working their way from the epic trough set in mid-April. There are three key drivers for this bounce.
> First, the unprecedentedly large OPEC+Russia deal has been in effect since May 1. Compliance in the first month has been stronger than expected, though we predict cuts will ultimately be less ambitious than what has been pledged.
> Second, price-related production shut-ins in the U.S. and elsewhere have also been needle-moving.
> Third, and most importantly, the COVID-related disruptions in transportation and economic activity continue to subside. Having been tracking economic reopening policies in 80 countries, here is the key datapoint: of the 4.1 billion people who have been under a lockdown at some point since January, 3.8 billion (93%) already have some reopening, even if the vast majority is only partial (by sector or by region). This point is confirmed by traffic congestion data, as well as commentary by refiners. While it would not be realistic for demand to get back to pre-COVID levels until 2022, we think that the impact peaked in April, with June set to be better than May, 3Q better than 2Q, and 4Q better than 3Q. With the worst of the demand shock in the rearview, and also bearing in mind the nuances around contract expirations, the 12-month futures strip has improved substantially ($34.90/Bbl for WTI and $37.65/Bbl for Brent) but has moved from contango to a nearly flat profile.
Cowen Equity Research 5/29/2020
■ Our updated macro assumptions now reflect a bottom in U.S. rig count and completion
activity toward the end of 2Q20. Previously, we expected a U.S. activity bottom around
year-end 2020/early 2021. As a result, we now see the U.S. rig count bottoming at an
average of 283 in 3Q20 vs our prior assumption of 230 in 2021, and now a recovery to < Keep in mind that we need ~800 rigs drilling for oil in U.S. to hold production flat.
581 in 2024 from 477 previously. Internationally, the rig count is tracking below our
model, and we have lowered our expectations accordingly, but continue to see a recovery
to above 2019 levels by 2024 as the U.S. cedes share of global oil production to OPEC and
other International producers.
The outlook for oil has improved since our early April update, most notably with OPEC+’s
9.7MM bpd cut and what appears to be a strong level of compliance, at least for now,
and some hope of extending the current level of cuts beyond June. Additionally,
voluntary shut-ins (though economically driven) have been significant with estimates for
U.S. shut-ins rating from ~1.3 to 2MM bpd, this is before any decline in production
resulting from lower OFS activity. There is some growing concern of excess supply when
shut-ins are turned back on, but at a high level the supply side is looking much better
than it did 30-60 days ago.
At the same time the demand picture has improved with an easing of COVID-19
lockdowns, however we note the magnitude of recovery is probably lower than some of
the more bullish expectations. Looking at DOE motor gasoline products supplied,
volumes have improved, but are still ~20% below the beginning of the year.