Oil & Gas Prices - Oct 14

[dan_s]

Opening Prices:
> WTI is up 8c to $40.28/Bbl, and Brent is up 9c to $42.54/Bbl.
> Natural gas is down 19.9c to $2.656/MMBtu. Aegis Energy: "Gas prices retreat as weather turns milder and GoM production returns."

Keep this in mind as you look at the daily oil & gas prices:
1. The prices shown above are the front month (NOV20) futures contracts for WTI oil delivered to Cushing, OK and natural gas delivered to Henry Hub, Louisiana next month.
2. Oil and natural gas prices used to have a relationship and normally go up and down together. That relationship is gone today.
3. Oil prices are primarily based on global supply & demand and Natural Gas prices are set on regional supply & demand.
4. The U.S. gas market is going to be VERY TIGHT in Q1 2021. < Only an extremely warm winter will keep this from happening.
5. Low oil prices are actually bullish for U.S. natural gas prices because low prices keep drilling budgets for oil down and therefore lower the "Associated Gas" volumes (especially from the Permian Basin) that were the primary reason the U.S. gas market became so oversupplied in 2019 and 1H 2020.
6. KEY POINT: The ngas price shown above is for the NOV20. That gas will be physically delivered to storage facilities in November that will be nearly full, therefore storage fees will be high. Plus, the paper traders cannot take physical delivery and they must close out their long positions over the next two weeks. Utility Companies are the primary holders of gas in storage and they don't need anymore gas in November.

The Utility Companies and LNG export companies are now keenly aware that U.S. gas supply is declining. They will be actively buying more supply this winter. Gas storages during the winter can cause utility company "Bidding Wars" during the winter. See the HUGE price spikes in this 10-year chart: https://tradingeconomics.com/commodity/natural-gas
Ngas went to $4.70 in November 2018 and I think we are facing a much tighter U.S. gas this winter.

Focus on the winter months. Here are the NYMEX contracts this morning for December to March.
DEC20 at $3.23
JAN21 at $3.36
FEB21 at $3.33
MAR21 at $3.21 < If we have a normal winter + LNG exports averaging 9.5 BCF per day from November to April, natural gas in storage will be at or below the 5-year average 3/31/2021.