We are enjoying a relaxing day at sea on RCL's Adventure of the Seas.
Opening Prices:
> WTI is up $0.32 to $74.95/bbl, and Brent is up $0.28 to $79.93/bbl.
> Natural gas is down -17.7c to $3.733/MMBtu.
AEGIS Notes
Oil
Oil extends gains as the market weighs China’s reopening and U.S. monetary policy
Feb ’23 WTI rose nearly 30c this morning to trade around $75/Bbl
China made additional progress toward reopening and increased crude import quotas for refiners, fostering optimism for a rebound in Chinese demand
However, there are concerns that a relaxed policy, coupled with an uptick in domestic travel prior to the nation's Lunar New Year, could result in a surge in Covid cases
Two U.S. Federal Reserve officials said on Monday that the Fed policy rate, which is currently at 4.25% to 4.5%, would need to be raised incrementally to 5.0-5.25% to control rising inflation rates
Fed officials further added that they would look to Thursday’s CPI data to determine the pace of future rate hikes
Despite the G-7 and EU price cap, data from the Russian Energy Ministry's CDU-TEK unit show that Russia's oil output was flat in December (BBG, Reuters)
In December, Russian producers reported an average daily production of 10.89 MMBbl/d of oil and condensate, down from 10.9 MMBbl/d in November
The country's Urals grade has been trading significantly below the $60/Bbl price cap at around $37/Bbl, according to Argus
Additionally, the Russian Energy Ministry said today that it has been working on additional measures to limit discounts to international benchmarks on Russian oil prices after the West imposed price caps
Goldman says a tighter oil market may allow OPEC to restore production in 2H2023 (BBG)
Growing oil demand could force the market back into deficit from June, with the potential tightness causing Brent to rise to $105/Bbl by 4Q23 and allowing OPEC to undo October's output cuts, said the bank in a note to its clients on Monday
Global oil consumption may increase by 2.7 MMBbl/d in 2023 Y-o-Y, with 1.7 MMBbl/d coming from China, according to analysts Daan Struyven and Yulia Grigsby < This should push WTI to $100/bbl by Q3.
They added that the bloc’s recent focus on remaining "proactive and pre-emptive," along with its forecast of a back-loaded 2.3 MMBbl/d increase in oil demand in 2023, indicate that it is unlikely to reduce output further reduce output
Natural Gas
Natural gas prices are lower by 5% to $3.73 this morning after climbing 11% yesterday
The Summer ’23 strip is down 13c to $3.58, and the Winter ‘23/’24 strip is lower by 11c to $4.39
Prices recovered slightly yesterday after reaching an 18-month low amid much warmer-than-normal forecasted weather for January
Today’s weather forecast changes are mixed with the Northeast forecast cooling by 13.4 °F and the Midwest forecast warming by 11.6 °F
EU to begin LNG price assessment on Friday (Reuters)
EU energy regulators will begin publishing a daily LNG price assessment as part of their new plan to create an LNG benchmark price
The goal of the price assessment will be to “provide more transparency to member states and other market participants on the prevailing price of LNG imports to Europe”
The goal of the benchmark will be to provide a reference price for LNG contracts and trades due to the EU’s belief that the Dutch TTF hub is no longer representative of gas pricing in Europe
Goldman Says gas price targets at risk due to warmer weather (Reuters)
A recent note from the bank says that unseasonably warm weather in both the US and Europe is a downside risk for their price targets
The bank reduced their TTF price forecast by 7% but has not changed their forecast for Henry Hub, currently at $6.42/MMBtu in the first quarter of 2023 and $4.15/MMBtu for the second quarter of 2023
Oil & Gas Prices - Jan 10
Oil & Gas Prices - Jan 10
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Jan 10
From OilPrice.com
Once again, oil price watchers are looking at U.S. Federal Reserve decisions rather than supply-demand balances, with the community eagerly anticipating Thursday’s inflation data to gauge the extent of upcoming interest rate hikes. The main bullish factor of the past weeks, namely China’s widely expected return to oil markets, is still yet to boost oil prices as trust in Chinese consumption growth remains tepid.
Chinese Import Quotas Add Bullish Impetus. Chinese authorities issued their second batch of 2023 oil import quotas, hiking their volume by 20% year-on-year to 111.82 million tons, in a thinly veiled bid to boost refinery operations and product exports amidst slowing economic growth.
U.S. Gasoline Prices Rise Again in 2023. U.S. gasoline prices have risen for the second straight week, with the nationwide average coming in at $3.25 per gallon on the back of ongoing refinery disruptions caused by the December bomb cyclone.
Once again, oil price watchers are looking at U.S. Federal Reserve decisions rather than supply-demand balances, with the community eagerly anticipating Thursday’s inflation data to gauge the extent of upcoming interest rate hikes. The main bullish factor of the past weeks, namely China’s widely expected return to oil markets, is still yet to boost oil prices as trust in Chinese consumption growth remains tepid.
Chinese Import Quotas Add Bullish Impetus. Chinese authorities issued their second batch of 2023 oil import quotas, hiking their volume by 20% year-on-year to 111.82 million tons, in a thinly veiled bid to boost refinery operations and product exports amidst slowing economic growth.
U.S. Gasoline Prices Rise Again in 2023. U.S. gasoline prices have risen for the second straight week, with the nationwide average coming in at $3.25 per gallon on the back of ongoing refinery disruptions caused by the December bomb cyclone.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Jan 10
Closing Prices:
> Prompt-Month WTI (Feb 23) was up $0.49 on the day, to settle at $75.12
> Prompt-Month Henry Hub (Feb 23) was down $-0.271 on the day, to settle at $3.639
> Prompt-Month WTI (Feb 23) was up $0.49 on the day, to settle at $75.12
> Prompt-Month Henry Hub (Feb 23) was down $-0.271 on the day, to settle at $3.639
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Jan 10
Dan, can you please comment on this Bernstein article? Thanks!!
U.S. Natural Gas & MLPs
US Natural Gas 2023 outlook: It's all downhill from here -
forecasting $4/mmbtu for 2023 (near strip) and $3.5 for 2024
(below strip)
Jean Ann Salisbury
+1 212 969 2427
jeanann.salisbury@bernstein.com
Bob Brackett, Ph.D.
+1 212 756 4656
bob.brackett@bernstein.com
Khai-Leif Nguyen-Hille
+1 212 969 2324
khai-leif.nguyen-hille@bernstein.com
Anshika Bajpai
+1 212 969 1134
anshika.bajpai@bernstein.com
Ian Moore
+1 212 969 6659
ian.moore@bernstein.com
We lower our 2023 gas price to $4/mmbtu, and 2024 gas price to $3.5/mmbtu. The
forward strip reflects ~$4/mmbtu for the next few years.
Last year, we saw gas price spike to levels not seen in years, spending several months well
above $8/mmbtu. In retrospect, this was a reflection of the vast chasm between cost of
supply of gas ($3-$4/mmbtu) and willingness of consumers to pay for gas ($9-$10/mmbtu
with no demand destruction without unlimited coal). As coal production fell and its share of
the US power stack fell from 22% to 20% it caused sudden movement upward in gas price
to cover it short term; over the span of a year, gas has effectively grown into that share
at its cost of supply of $4/mmbtu. The continuing extension of Freeport's outage also
materially reduced our demand expectations for 2022/23.
Which brings us to this year – we enter the year ~200bcf shy of the five year average for
storage, and in our view, gas pipeline constraints from the major basins will keep us
just under the 5 year average for most of 2023, suggesting a price slightly above
marginal cost of supply of $4/mmbtu.
However, from 3Q23 to 3Q24, we are adding an astounding 9bcfd of pipeline
capacity to the Permian and Haynesville (plus MVP from Appalachia if it happens).
During this period, demand will barely grow with no major LNG starts. This spells trouble
and we expect a fall vs the forward curve in 2024; we forecast $3.5/ mmbtu. We expect
more or less a straight line down from here until end 2024 when LNG starts to ramp.
The numbers: In 2023, we anticipate +3bcfd of demand. +2.2bcfd is driven by Freeport
return (end Jan modeled) and a full year from VG. The rest is +1bcfd from industrial and
power, and another +0.8bcfd in NGL and pipeline shrink (and -1bcfd from ResCom falling
to average weather). Exhibits 6-17
Against this, we anticipate a supply growth of ~4bcfd, with some tilt to the back end of
the year due to Permian pipe starts. We forecast 2bcfd from the Permian, 1.3bcfd from
Eagleford/Midcon, 1.3 from Haynesville, and vertical declines of ~0.7bcfd. Pipeline
constraints in the Permian and Haynesville are arguably holding these numbers down by
~1.5bcfd; when the pipes start up we anticipate 2024 at +another 4bcfd supply vs perhaps
+2.5bcfd of demand, which will be a recipe for low gas prices. Exhibits 18-26
There is still time to avert this outcome! If the Haynesville producers can see this
phenomenon, they could cut back their 2 year growth plans; if they stayed flattish through
2024 they could probably maintain the $4/mmbtu price, but this seems unlikely when they
can currently hedge into 2024 at $4 and over half of rigs there would need to be cut to stay
flat from 2023/24 given the many DUCs.
This view is negative gas E&Ps and incrementally positive for Cheniere in our coverage.
See the Disclosure Appendix of this report for required disclosures, analyst certifications and other
important information.
www.bernsteinresearch.co
U.S. Natural Gas & MLPs
US Natural Gas 2023 outlook: It's all downhill from here -
forecasting $4/mmbtu for 2023 (near strip) and $3.5 for 2024
(below strip)
Jean Ann Salisbury
+1 212 969 2427
jeanann.salisbury@bernstein.com
Bob Brackett, Ph.D.
+1 212 756 4656
bob.brackett@bernstein.com
Khai-Leif Nguyen-Hille
+1 212 969 2324
khai-leif.nguyen-hille@bernstein.com
Anshika Bajpai
+1 212 969 1134
anshika.bajpai@bernstein.com
Ian Moore
+1 212 969 6659
ian.moore@bernstein.com
We lower our 2023 gas price to $4/mmbtu, and 2024 gas price to $3.5/mmbtu. The
forward strip reflects ~$4/mmbtu for the next few years.
Last year, we saw gas price spike to levels not seen in years, spending several months well
above $8/mmbtu. In retrospect, this was a reflection of the vast chasm between cost of
supply of gas ($3-$4/mmbtu) and willingness of consumers to pay for gas ($9-$10/mmbtu
with no demand destruction without unlimited coal). As coal production fell and its share of
the US power stack fell from 22% to 20% it caused sudden movement upward in gas price
to cover it short term; over the span of a year, gas has effectively grown into that share
at its cost of supply of $4/mmbtu. The continuing extension of Freeport's outage also
materially reduced our demand expectations for 2022/23.
Which brings us to this year – we enter the year ~200bcf shy of the five year average for
storage, and in our view, gas pipeline constraints from the major basins will keep us
just under the 5 year average for most of 2023, suggesting a price slightly above
marginal cost of supply of $4/mmbtu.
However, from 3Q23 to 3Q24, we are adding an astounding 9bcfd of pipeline
capacity to the Permian and Haynesville (plus MVP from Appalachia if it happens).
During this period, demand will barely grow with no major LNG starts. This spells trouble
and we expect a fall vs the forward curve in 2024; we forecast $3.5/ mmbtu. We expect
more or less a straight line down from here until end 2024 when LNG starts to ramp.
The numbers: In 2023, we anticipate +3bcfd of demand. +2.2bcfd is driven by Freeport
return (end Jan modeled) and a full year from VG. The rest is +1bcfd from industrial and
power, and another +0.8bcfd in NGL and pipeline shrink (and -1bcfd from ResCom falling
to average weather). Exhibits 6-17
Against this, we anticipate a supply growth of ~4bcfd, with some tilt to the back end of
the year due to Permian pipe starts. We forecast 2bcfd from the Permian, 1.3bcfd from
Eagleford/Midcon, 1.3 from Haynesville, and vertical declines of ~0.7bcfd. Pipeline
constraints in the Permian and Haynesville are arguably holding these numbers down by
~1.5bcfd; when the pipes start up we anticipate 2024 at +another 4bcfd supply vs perhaps
+2.5bcfd of demand, which will be a recipe for low gas prices. Exhibits 18-26
There is still time to avert this outcome! If the Haynesville producers can see this
phenomenon, they could cut back their 2 year growth plans; if they stayed flattish through
2024 they could probably maintain the $4/mmbtu price, but this seems unlikely when they
can currently hedge into 2024 at $4 and over half of rigs there would need to be cut to stay
flat from 2023/24 given the many DUCs.
This view is negative gas E&Ps and incrementally positive for Cheniere in our coverage.
See the Disclosure Appendix of this report for required disclosures, analyst certifications and other
important information.
www.bernsteinresearch.co
Re: Oil & Gas Prices - Jan 10
The weather risk premium is gone. So if the eastern U.S. does remain mild thru February, gas prices will remain under pressure.
Getting Freeport back on line will help a lot.
I cannot recall winter ending in January, can you?
I have adjusted all of the Sweet 16 valuations based on ngas averaging $4 in 2023.
Getting Freeport back on line will help a lot.
I cannot recall winter ending in January, can you?
I have adjusted all of the Sweet 16 valuations based on ngas averaging $4 in 2023.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group