Oil & Gas Prices - Feb 1

[dan_s]

Goldman Sachs: "... it is the imbalance between supply and demand levels that matter most for commodities." See more from GS below.

Opening Prices:
> WTI is up 39c to $52.59/Bbl, and Brent is up 57c to $55.61/Bbl.
> Natural gas is up 20.5c to $2.769/MMBtu.

Aegis Morning Notes
Crude Oil

Oil is trading higher this morning, after back-to-back weekly declines
The Enbridge Line 5 tunnel project received an essential permit on Friday. Still, construction is not likely to begin until next year
Goldman Sachs Research expects an expedient recovery (see details below), where demand will reach pre-virus levels by August. Furthermore, the bank nearly doubled its 1H2021 deficit estimate from 0.5 MMBbl/d to 0.9 MMBbl/d

The Enbridge Line 5 tunnel project under the straits of Mackinac in Michigan receives key wetlands and wastewater discharge permit approvals
Enbridge expects to begin construction on the tunnel next year and announced on October 14 that 90% of the design work is complete
The Line 5 pipeline carries up to 540,000 barrels daily of NGLs and crude

The oil market re-balancing has continued to beat Goldman’s expectations
Goldman expects the market to have an average deficit of 900,000 Bbl/d during 1H2021, compared to a previous forecast of 500,000 Bbl/d
The tighter starting point in 2021 more than offsets a slower recovery in fuel demand, according to the bank
Goldman still expects global oil demand will reach its pre-virus level of 100 MMBbl/d by August

Natural Gas

Winter storm warning and winter weather advisories have been issued for areas in the Northeast as a new winter storm has emerged
The first wave of the storm swept through the Midwest and Ohio Valley over the weekend, however it has since lost some of its strength. A new storm began developing on Sunday off the southeastern coast of Virginia and was showing signs of strengthening this morning
Forecasters are predicting a long-duration event that could bring up to 36 inches of snow. This would pull gas flows to supply heating in the region, providing support to local prices

NextDecade announced last week that it will be cancelling the Galveston LNG export terminal project as the Army Corps of Engineers says there is an issue with permitting the site (PointLogic)
The company said due to the uncertainty of a positive outcome around permitting it is forfeiting the site and will no longer make lease payments to the City of Texas City and the Texas General Land Office. The circumstances of the Galveston Bay LNG have no impact on NextDecade’s Rio Grande LNG project in the Port of Brownsville, where late-stage development activities are ongoing, according to NextDecade. The canceled project, which wouldn’t have been in place in service until 2027, was to be a three-train LNG facility with a total capacity of 16.5 MTPA (~2.1 Bcf/d) of LNG

The Biden administration’s recent extension of U.S. leasing moratorium puts nearly 4 Bcf/d of gas growth at risk according to Platts
Most U.S. production losses would impact New Mexico, where up to 3 Bcf/d on new gas supply could be at risk through 2024
President Biden signed an executive order on January 27 that would put a pause on all new federal oil and gas leases, while the Department of the Interior reviews current leases and permit authorization processes
In order to utilize a stockpile of permits hoarded before Biden became president, Platts believes there will be a surge of D&C activity on federal lands in the coming months as operators attempt to drill permits before expiration. Permit extensions are seen as unlikely in the current environment.


Goldman Sachs Oil Price Forecast is now $65/bbl Brent by July
January 31, 2021

> The rally in oil prices has paused as the market assesses the potential threats from lockdowns, virus mutations and Iranian barrels. Our base-case remains for a demand-led rebalancing of the oil market, with the logistical challenges of vaccination likely transient and evidence of still elevated vaccine efficacy.

> Importantly, the oil market rebalancing continues to beat our above-consensus expectations, consistent with strong crude timespreads. Incoming data for late 2020 point to a 2.3 mb/d deficit in 4Q20, driven by both higher EM and DM demand (+ 1.1 mb/d) and lower non-OPEC+ supply (- 0.3 mb/d). Such a tighter starting point for 2021 more than offsets a slower assumed recovery in demand, jet in particular, with as a result a tighter oil market now expected in 1H21 (-0.9 mb/d average deficit vs. -0.5 mb/d previously).

> In fact, the lack of higher drilling activity at current price levels creates clear downside risks to our non-OPEC+ production path, large enough by early 2022 (at 1.3 mb/d) to help offset the potential for a slowed demand recovery should mutations reduce vaccine efficacy. In addition, initial actions by the US administration have focused on supporting consumption but increasing costs for the still needed shale barrel, with no indication of a quick return of Iran barrels (with OPEC+ expected to help accommodate such a return anyway).

> Net, tighter fundamentals reinforce our convictions in a fast rebalancing oil market, with a less aggressive sequential demand ramp-up in 1H21 (+5.3 mb/d vs. 6.8 mb/d previously) still normalizing the excesses in inventories and OPEC+ spare capacity by 3Q21. Whereas financial markets gyrate with expected sequential growth rates, it is the imbalance between supply and demand levels that matter most for commodities. < As I have been stressing in my podcasts and today's EPG webinar, when OECD oil inventories get close to 30 Days of Consumption, the price of oil should move over $60/bbl. If OECD oil inventories move below 28 Days of Consumption in 2H 2022 we might see triple digit oil prices necessary to ramp up drilling activity needed to balance supply/demand.

> This incoming oil tightness will therefore help oil weather financial market uncertainty, and we expect Brent prices to reach $65/bbl by July, 2020 whilst offering investors a high positive carry. Growing evidence of supply under-investment in turn leave risks to this price forecast skewed to the upside in 2022.

[dan_s]

Closing Prices:
> WTI prompt month (MAR 21) was up $1.35 on the day, to settle at $53.55/Bbl. < Thanks to Goldman Sachs' forecast of $65/bbl Brent within six months.
> Also, NG prompt month (MAR 21) was up $0.286 on the day, to settle at $2.850/MMBtu. < Thanks to major snow storm that is hammering the Northeast this week.