Oil & Gas Prices - Feb 18
Posted: Fri Feb 18, 2022 10:19 am
Headlines and lots of conflicting reports about Russia/Ukraine and the Iran Nuke Deal have created confusion for the traders of commodity futures. Despite all of the "noise", the oil market is under-supplied and will be a lot more under-supplied in Q2.
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Opening Prices:
> WTI is down $1.95 to $89.81/bbl, and Brent is down $1.81 to $91.16/bbl.
> Natural gas is up 2.5c to $4.511/MMBtu.
AEGIS Notes
Oil
Oil prices are headed for the first weekly loss in two months as uncertainty over the Ukraine crisis, and a possible Iran nuclear deal weighs on the market
> The removal of sanctions on Iran has the potential to add about 1.5 MMBbl/d to the global supply
> Tensions between Ukraine and Russia continue to run high. “The Ukraine crisis is taking a back seat to the prospect of Iranian barrels flooding the market,” said Stephen Brennock, an analyst at brokerage PVM Oil Associates. < Terms like "Flooding the market" are extremely misleading. Iran has been selling oil to China and the amount of additional oil Iran can bring to the market is much lower than 1.5 million bpd. Plus, the global oil market has been under-supplied by 1.5 to 2.0 million bpd for over a year. OECD inventories on a Days of Consumption measure are much lower than they have been for decades.
Oil drillers are resisting the temptation to pump more oil as the market rallies (Bloomberg)
> Following recent earnings calls, large independents like Pioneer, Devon, and Continental pledged to limit 2022 production increases to no more than 5%, a fraction of the 20% or higher annual growth rates pre-pandemic
> “Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans,” Pioneer CEO Scott Sheffield said during a Bloomberg TV interview
Natural Gas
The prompt-month Henry Hub (Mar ’22) contract is up by 2.5c this morning near $4.511
> The March '22 contract is on track for a 54c, or 14% gain on the week
> LNG feedgas demand is at a new record-high of 13.4 Bcf/d as Calcasieu Pass continues to ramp up. The facility is now receiving just shy of 440 MMcf/d of gas deliveries
> Lower-48 dry gas production slid back below 94 Bcf/d, and the country will likely face renewed freeze-offs next week, particularly in the Rockies
European gas storage levels survive winter but refilling inventories remain a challenge
> The winter gas season in Europe typically runs from October to March, and summer starts in April
> Typically, summer brings lower wholesale prices and gas demand, which allows countries to fill inventories; however, that did not happen last year, which caused Europe to enter winter with its lowest inventory levels in over ten years
> According to Reuters, the European Union proposes requiring countries to fill natural gas storage ahead of each winter to help bolster stocks and cope with supply disruptions < This is bullish for U.S. natural gas prices as it will keep demand for LNG high all summer, which in turn will make it difficult for the U.S. to refill its own natural gas storage network. My forecast/valuation models assume that HH natural gas prices will average $3.75/MMBtu in 2022 and $3.50/MMBtu in 2023. The NYMEX futures contracts for HH natural gas for the next 12 months (MAR22 to FEB23) are all above $4.50 this morning.
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Opening Prices:
> WTI is down $1.95 to $89.81/bbl, and Brent is down $1.81 to $91.16/bbl.
> Natural gas is up 2.5c to $4.511/MMBtu.
AEGIS Notes
Oil
Oil prices are headed for the first weekly loss in two months as uncertainty over the Ukraine crisis, and a possible Iran nuclear deal weighs on the market
> The removal of sanctions on Iran has the potential to add about 1.5 MMBbl/d to the global supply
> Tensions between Ukraine and Russia continue to run high. “The Ukraine crisis is taking a back seat to the prospect of Iranian barrels flooding the market,” said Stephen Brennock, an analyst at brokerage PVM Oil Associates. < Terms like "Flooding the market" are extremely misleading. Iran has been selling oil to China and the amount of additional oil Iran can bring to the market is much lower than 1.5 million bpd. Plus, the global oil market has been under-supplied by 1.5 to 2.0 million bpd for over a year. OECD inventories on a Days of Consumption measure are much lower than they have been for decades.
Oil drillers are resisting the temptation to pump more oil as the market rallies (Bloomberg)
> Following recent earnings calls, large independents like Pioneer, Devon, and Continental pledged to limit 2022 production increases to no more than 5%, a fraction of the 20% or higher annual growth rates pre-pandemic
> “Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans,” Pioneer CEO Scott Sheffield said during a Bloomberg TV interview
Natural Gas
The prompt-month Henry Hub (Mar ’22) contract is up by 2.5c this morning near $4.511
> The March '22 contract is on track for a 54c, or 14% gain on the week
> LNG feedgas demand is at a new record-high of 13.4 Bcf/d as Calcasieu Pass continues to ramp up. The facility is now receiving just shy of 440 MMcf/d of gas deliveries
> Lower-48 dry gas production slid back below 94 Bcf/d, and the country will likely face renewed freeze-offs next week, particularly in the Rockies
European gas storage levels survive winter but refilling inventories remain a challenge
> The winter gas season in Europe typically runs from October to March, and summer starts in April
> Typically, summer brings lower wholesale prices and gas demand, which allows countries to fill inventories; however, that did not happen last year, which caused Europe to enter winter with its lowest inventory levels in over ten years
> According to Reuters, the European Union proposes requiring countries to fill natural gas storage ahead of each winter to help bolster stocks and cope with supply disruptions < This is bullish for U.S. natural gas prices as it will keep demand for LNG high all summer, which in turn will make it difficult for the U.S. to refill its own natural gas storage network. My forecast/valuation models assume that HH natural gas prices will average $3.75/MMBtu in 2022 and $3.50/MMBtu in 2023. The NYMEX futures contracts for HH natural gas for the next 12 months (MAR22 to FEB23) are all above $4.50 this morning.