Oil & Gas Prices - Nov 7

[dan_s]

Opening Prices:
> WTI is down $0.58 to $92.03/bbl, and Brent is down $0.51 to $98.06/bbl.
> Natural gas is up 66.6c to $7.066/MMBtu.

AEGIS Notes
Oil

Oil prices fall slightly but stay near $92/Bbl
WTI marginally reversed its gains from Friday to trade above $90/Bbl

China's COVID-19 cases surged to a six-month high on Sunday, and the nation’s National Health Commission reiterated its stance on “unswervingly” adhering to its Covid-zero curbs. China tightened Covid restrictions in Beijing and Guangzhou yesterday, raising worries about future economic and demand disruptions. < IMO this is "noise" coming from China, which may be using it to hold down oil prices since it is the largest importer of oil. The number of Covid cases is very low when compared to China's massive population and deaths from Covid in China is a tiny percentage.

The USD Index (DXY – a proxy for U.S. Dollar strength against a basket of other international currencies) relatively weakened from its recent 20-year highs
A weaker dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay less for the same amount of goods

China’s oil imports increased for the first time since May (BBG)
China increased oil imports last month after the government issued additional fuel export quotas in an effort to assist the nation’s economy to recover
The largest crude importer in the world bought 10.2 MMBbl/d in October, which is 4% more than in September and the most since May, according to customs data released on Monday
Beijing announced a 15 million tons (3.063 MMBbl) fuel export quota in late September that could be carried over into 1Q2023
Despite the increased quota, China's net fuel exports fell 43% in October compared to a month earlier, according to separate data released on Monday
China began this year by cutting back the quotas for fuel exports in the first export quota batch for 2022, signaling its intent to curb fuel exports and reduce excessive refinery output
But that was before the diesel shortage started to negatively affect the global economy with renewed inflationary pressure < There is a global shortage of diesel, which is very concerning since this world runs on diesel. Home heating oil shortages in the NE U.S. will also get a lot more press next week when some harsh winter weather move into the region.

Natural Gas

Natural gas futures are up 9.5% this morning as colder weather starts to appear in the forecasts
The Summer ’23 strip is up 18 cents to $5.27 this morning, while the Winter ‘23/’24 strip is higher by 16 cents to $5.73

Weather forecasts over the weekend shifted significantly cooler, with the total change in the 1-15 day period falling by 30 degrees from the prior forecast
The regions expected to be most affected by this are the Northeast and Midwest regions, whose forecasts fell by 47 and 52 degrees, respectively
These regions are also responsible for a large percentage of US gas demand

The US Northeast region could face a winter heating crisis (BBG)
A lack of pipeline capacity, low inventories of heating oil, and global competition for LNG cargoes could result in a shortage of natural gas in the US Northeast
About half of the electricity generated in the region comes from natural gas; if a shortage were to materialize, space heating demand could take precedence over demand from power plants < Watch for "Super Price Spikes" in the New England spot markets.

On some days, LNG imports into the Northeast can provide as much as 35% of the region’s gas supply; competition from Europe and Asia could affect this supply
Winter ‘22/’23 gas prices at the Transco Zone 6 basis location in New York are trading at a $5.36 premium to Henry Hub
The normal premium at this time of year is about $2.00 to Henry Hub

US gas-powered generating capacity is growing (EIA)
This year eight new combined cycle gas-powered generators will become operational in the US, adding 7.75 gigawatts of generating capacity
Most of these new plants will be replacing coal-powered generators which are being phased out, or less efficient gas generators
Most of the plants coming online this year will be located in the US Midwest, although two will be in Florida, and one in Texas

[dan_s]

Closing Prices:
> Prompt-Month WTI (Dec 22) was down $-0.82 on the day, to settle at $91.79
> Prompt-Month Henry Hub (Dec 22) was up $0.544 on the day, to settle at $6.944

When real winter weather arrives in Chicago, the natural gas price will spike. It is going to be a very profitable winter heating season for all of our gassers.