Oil & Gas Prices - Dec 20

[dan_s]

Opening Prices:
> WTI is down $3.34 to $67.52/Bbl, and Brent is down $2.82 to $70.70/Bbl.
> Natural gas is up 14.1c to $3.831/MMBtu.

AEGIS Notes
Oil

Oil futures fell about 5% Monday morning as the rapid spread of the Omicron virus variant and diminishing hopes of Biden’s economic plans roil markets
> Rising infections from Europe and the U.S. prompt restrictions on air travel and stricter curbs on mobility
> President Biden’s $2 trillion packages were derailed by surprise “no” from Senator Joe Manchin (Bloomberg)
> Goldman Sachs economists cut their U.S. economic growth forecasts

The front of the oil curve continues to signal oversupply as January WTI trades just under the February contract
> The move into contango for the prompt-month spread is a far cry from the steep backwardation seen in late October
> WTI for January traded at nearly a $1.80/Bbl premium to February on October 31
> AEGIS notes that the January contract expires today and could be influencing the weakness of the January contract
Even so, WTI’s 2nd month is trading at only a 24c premium to the 3rd month (February-March). Backwardation was $1.80/Bbl for these two months back in late October

Natural Gas

The prompt-month (Jan ’22) Henry Hub contract is up by 14.1c this morning, near $3.831
> Weather models turned cooler for the West region over the weekend but warmed for the East
> The gas-weighted heating degree day forecast lost 10 HDDs over the weekend to bring the December total to 694 HDDs
> U.S. LNG feedgas demand set a new record of 13.1 Bcf/d on Sunday
> Sabine Pass set a new record of 5.08 Bcf/d, thanks to Train-6 commissioning and efficiency gains due to colder weather

Europe is bracing for energy shortages as cold weather aims for the continent
> Temperatures are expected to fall below zero degrees Celsius in several European capitals this week < The last price I see for Dutch TFF (Europe's benchmark for delivered LNG) is $47.37/MMBtu. Asia's JKM price was $35.87/MMBtu last week.
> Low wind speeds and nuclear outages in France have exacerbated the energy crunch
> Gas bookings show Russian flows will remain capped into January
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MY TAKE: FEAR of Covid controls the oil market these days. The FEAR discount triggered a lot of automated sell orders this morning. The natural gas market reflects the global shortage of space heating fuels and below normal temperatures in Europe. With the MJO moving into phase 8 by the end of December, the below normal temperatures should move into Eastern U.S. early in January. Watch the Saturday Summary here https://www.weatherbell.com/premium/ to learn what the "MJO" is and how it impacts the global weather pattern.

If demand for U.S. LNG remains at or near capacity all winter, U.S. natural gas in storage will be drained to well below the 5-year average by the end of March even if we have a mild winter in the U.S. (which is unlikely with La Nina in the Pacific). Keep in mind that all of our "gassers" will be extremely profitable in 2022 even if ngas were to average $3.00/mcf for the year. For example, if Antero Resources (AR) average realized gas price is $3.00/mcf they should generate $2 Billion of operating cash flow for 2022, which compares to their capital expenditure budget for 2021 of $660 million. BTW Antero's average realized price (net of differentials and cash settlements on their hedges) for the nine months ending 9-30-2021 was $3.15/mcf because the company's high BTU gas sells at a $0.15 to $0.20 per mcf premium.

Another thing to remember is that the NYMEX strip is not a "forecast". It is just what oil and gas prices can be locked in TODAY.

[dan_s]

Within 6 to 8 months, when there is no more spare production capacity in the world, news like this will cause an oil price spike.
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(Bloomberg) -- Libya’s biggest oil field has been shut down
after militias closed a valve on a pipeline running to a port,
according to a person familiar with the matter.
Members of the Petroleum Facilities Guard, a paramilitary
force set up to protect the OPEC nation’s energy facilities,
closed the valve on the pipeline taking crude from Sharara to
Zawiya port, the person said.
Sharara has a daily capacity of around 300,000 barrels and
its closure may have lowered Libya’s overall production below 1
million barrels. The country’s daily output was roughly 1.2
million barrels in November, according to data compiled by
Bloomberg.
The incident comes ahead of a presidential election
scheduled for Dec. 24 that’s meant to end more than a decade of
conflict and civil war.