latest weekly Aegis report
Posted: Fri Jun 17, 2022 7:27 pm
I highly recommend that all of you watch the AEGIS video at the link above. It will help you understand how difficult it is to predict where commodity prices will be in the future. Global oil and refined product inventories are extremely low, which IMO is why the price risk is to the upside from where we are today. However, there is a lot of "noise" that the traders are trying to figure out.
Here are the bullet points from the AEGIS presentation that I jotted down:
Why did oil trade lower on Friday?
> New national holiday has markets closed on Monday. Lots of traders decided to close out their longs going into a 3 day holiday.
> Lots of "noise": War in Ukraine, How bad is inflation?, What's the Fed going to do next?, Will consumer spending drop sharply?
> U.S. dollar strength puts pressure on all commodity prices.
> OPEC+ is now clearly out of spare capacity (very bullish for price) + Libya conflict an example of the geopolitical risk out there.
> Global refinery capacity is down, which is why rebuilding refined product inventories is going to be difficult and why gasoline & diesel prices won't come down.
> Team Biden considering banning U.S. exports of refined products. < This would be EXTREMELY BAD FOR THE GLOBAL ECONOMY and make supply chain issues worse.
For Natural Gas:
> Recent drop in ngas price is all because of the Freeport LNG export facility being offline for at least 90 days. It reduces demand by 2 Bcf per day, which could add ~200 Bcf to storage. This reduces fear of insufficient ngas storage heading into winter.
> On the bullish side. June has been warmer than normal and the Q3 weather forecast is for a hot summer, increasing demand for power generation.
> Hurricanes in the Gulf of Mexico will have a big impact on supply and demand.
> Global gas market is EXTREMELY TIGHT. Europe bid for LNG went over $38/MMBtu last week.
> The rapidly expanding LNG market is why the long-range future for our "gassers" is bright. The U.S. natural gas market was over-supplied for 14 years, but those days of cheap gas appear to be over.
> My natural gas price assumptions probably need to come down a bit (now using $8.00 for Q3), but I want to see how the hot weather impacts the weekly storage reports for a few weeks. If I take my ngas prices down to $7.00 for Q3 2022 thru Q1 2023 it will only bring my valuations for AR, CRK, CTRA, EQT, RRC and SBOW down about 5%. Their hedges for 2H 2022 soften the impact.
Friday's closing prices for JUL22:
WTI oil = $109.56
HH gas = $6.944