Oil & Gas Prices - Oct 10

[dan_s]

Opening Prices:
> WTI is down $0.43 to $92.21/bbl, and Brent is down $0.49 to $97.43/bbl.
> Natural gas is down -0.5c to $6.743/MMBtu.

AEGIS Notes
Oil

Oil‘s rally halts, ending the five-day run of nearly 17% gain
> The U.S. Dollar strengthened this morning
> An expensive dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay more for the same amount of goods
> China's services activity in September contracted for the first time in four months, as COVID-19 restrictions hit already weak demand, showed a private-sector business survey on Saturday
> An official survey published last week also showed services activity slowing
> The slowdown in China, the second-largest oil consumer in the world, adds to rising concerns about a potential global recession brought on by several central banks hiking interest rates to combat inflation

Saudi Aramco will supply five Asian customers with their full contractual volumes of crude oil for November sales, according to refinery officials who were informed by the producer ((BBG, Reuters)
> Aramco also gave full contractual volumes to at least four European refiners for November ahead of the peak winter season
> The producer is keeping supplies to Asia steady despite likely production cuts by tapping on inventories, said people familiar with the matter

UAE’s President will visit Russia on Tuesday to meet with President Vladimir Putin, according to announcements from both nations
> The two leaders will discuss regional and international issues of shared interest, according to the UAE's state-run WAM media
> The announcement came less than a week after OPEC+, a group of oil producers that includes the UAE and Russia, agreed on steep oil production cuts in defiance of U.S. pressure

Natural Gas

Natural gas prices are down slightly to start the week, but the Winter ‘23/’24 strip is trading higher by 7.6 cents < NOV22 contract now up $0.13 to $6.88 at the time of this post.
> Temperature forecasts have moved lower for the continental US, with the average temperature for the next two weeks set to fall below 60 degrees, and well below the 10-year normal < Very strong La Nina in the Pacific could mean colder than normal December for the eastern half of the U.S. per Joe Bastardi in his Saturday podcast.
> The cooler weather is expected to bring in more demand for gas for space heating

Natural Gas Supply Association says prices will be supported by low storage levels this winter (S&P)
> Relatively low inventory levels of natural gas and coal could keep gas prices elevated, although increased production may ease some of the pressure
> The NGSA said that power plants will be 50% less likely to switch from natural gas to coal this winter, due to low coal inventories
> The group also mentioned that the permitting process for natural gas pipelines and infrastructure needs to be improved to reduce capacity constraints

Germany may subsidize 70-80% of natural gas consumption (BBG)
> The plan could cost up to $97 billion and would cover most households and businesses with both direct payments and subsidized prices
> Other European nations criticized the idea saying it could lead to price distortions and disrupt cross-border gas flows

[dan_s]

Maybe this is too much to hope for, but it would be nice if the "noise" would ease up and for oil prices to stabilize in the low $90's for the rest of October.

Europe clearly has a serious shortage of space heating fuels (oil, natural gas, coal and now firewood). In the U.S. we have a significant shortage of heating oil (~40% below normal in New England) and lower than normal natural gas inventories that will impact the large cities around the Great Lakes the most. Keep an eye on Chicago's weather where lows in the 30s are expected late this week. Propane inventories appear to be adequate, but I do advise keeping the tanks full if you heat and cook with propane.

Strong US dollar is keeping a lid on the oil price, but the fundamentals (supply not able to keep up with demand) will push Brent over $100 soon and WTI will move into triple digits soon after Biden quits draining the SPR.

Downside risk for the oil price is now very low since OPEC+ clearly wants higher oil prices.