Energy Prospectus

The stock market is closed today, but oil and gas futures are being actively traded.

Trading Economics:
WTI crude futures rebounded on Monday (over $93.60.bbl at the time of this post), amid doubts over a summit between US President Biden and Russian President Putin that could solve the conflict in Ukraine. The Kremlin said there were no concrete plans for a summit after the office of French President Emmanuel Macron announced that both US and Russian Presidents agreed in principle to meet to discuss the Ukrainian crisis. Meanwhile, investors continued to monitor efforts to revive the 2015 Iran nuclear agreement after a senior European Union official said Friday a deal was “very very close.” Analysts suggested that a potential deal could add more than 1 million barrels a day of Iranian crude to the market. On the OPEC front, OPEC+ compliance with oil output cuts rose to 129% in January from 122% in December, which would be the highest in more than two years, according to Reuters.

MY TAKE:
> The key word is "could" when worrying about how much oil that Iran will add to global supply. There is no deal with Iran until it is signed by the Supreme Leader and in my opinion Iran will break the deal as soon as they get money from Team Biden.
> Israel cannot allow Iran to get weapons grade uranium. The deal Team Biden has worked up actually increases the geopolitical risk to supply in the Middle East.
> Regarding OPEC+ compliance, the higher the percentage the further the cartel members fall behind their quotas. OPEC+ is out of the easy oil they can bring to the market. Saudi Arabia and UAE may be the only two with any potential to increase production. All oil wells go on decline soon after being completed and OPEC wells are no different. Most of the cartel countries have not been investing enough in their oilfields to hold production flat.

Natural Gas
Trading Economics:
US natural gas futures have managed to regain ground and approached the $4.70/MMBtu level, supported by forecasts for colder weather and higher heating demand this week. Meanwhile, EIA data showed a smaller-than-expected storage draw last week.

MY TAKE:
> The draw from storage for the week ending February 18 is likely to be 30 to 40 Bcf lower than the 5-year average. However, based on the updated weather forecast, draws for the next three weeks could be much larger than the 5-year average.
> This is a La Nina winter. The current weather pattern should keep most of the U.S. in real winter weather through at least mid-March. La Nina has extended winter into April before and if so, it will be very bullish for U.S. natural gas prices.

From OilPrice.com

“The only way to balance this market over the medium term remains high oil prices to slow demand growth,” analysts at Energy Aspects wrote in a note to clients this week cited by Bloomberg.

Bringing more supply, on the other hand, is now more challenging than before the pandemic. ESG issues and the energy transition for the international majors, as well as the new-found and still-largely-holding capital discipline of U.S. shale producers, combine with supply chain bottlenecks, labor shortages, and cost inflation. $100 oil could unleash a lot more U.S. oil production, in theory, but supply chain constraints and record-high frac sand prices are likely to temper growth, analysts at Rystad Energy say.

Global investments in supply rose in 2021 compared to 2020 and are expected to rise this year as well, but they will still lag pre-pandemic levels, all forecasters say. The oil majors have not boosted exploration investments too much, while U.S. shale basically needs to raise investment just to keep production flat. According to the International Energy Agency (IEA), the oil majors’ share of overall upstream spending is now at 25 percent, compared with nearly 40 percent in the mid-2010s.

Unlike oil majors, national oil companies, especially ADNOC of Abu Dhabi and Saudi Aramco, are investing more in new supply as they each look to raise their respective production capacities by 1 million barrels per day (bpd) by the end of this decade.

In the near term, however, the market fundamentals point that supply is lagging behind the rebound in demand, pushing oil prices higher, together with the threat of a possible disruption in the Russian oil supply due to the Ukraine crisis.

Analysts say that the short-term cure for high oil prices is for them to reach the point at which they will start to weigh on demand. It seems that we are not there yet. < Keep in mind that the last time OECD Petroleum Inventories were this low we had over four year (mid-2011 to mid-2014) when WTI stayed within a range of $80 to $110 per barrel. Adjust for inflation adjustment and I believe it will take WTI pushing up to $120/bbl before we see significant demand destruction. Plus, we are going to need a lot of oil-based fuels to resolve our supply chain problems, which Team Biden seems to ignore. Mayor Pete Buttigieg, U.S. Secretary of Transportation is clueless and more focused on the Woke Agenda.

I am sorry if my comments about Team Biden offend any of you, but I really cannot believe the weakness of the team that Biden put together. Old Joe himself probably had little to do with the selection of this Team Leaders. He probably has trouble remembering their names.

Crude is up almost 3 bucks. The overall market is lower

So what will win out on Tuesday, higher commodity prices or market risk?

I thought we had a chance for 5 gasoline and 100 oil but the anti's have screwed up everything so badly that I think 125 or more is in the cards.

You don't turn a faucet and oil comes out.

We need leadership and there isn't any, zero, nada

The iran deal wont solve anything

Biden said he was "going to work like the devil" to get inflation and oil prices down.

Guess he could declare an emergency, like Canada, and steal the oil.