Oil & Gas Prices - Feb 15

[dan_s]

From one of our members that is a Global Economist: "Oil is cheap relative to gold, the 5-year CPI breakeven is 2.52%, gold is okay … so let's just assume normality prevails for a while."

Opening Prices:
> WTI is down $0.79 to $78.27/bbl, and Brent is down $0.80 to $84.78/bbl.
> Natural gas is down -5.9c to $2.508/MMBtu.

AEGIS Notes
Oil

Oil extends losses amid concerns of oversupply and a stronger US Dollar
March ’23 WTI lost nearly 80c this morning to trade around $78/Bbl
IEA, in its February Monthly Oil report, raised its global demand forecast, citing China’s reopening
OPEC+ raised its estimated global demand for 2023 by 0.1 MMBbl/d, but the bloc expressed uncertainty regarding global economic activity
US Inflation data and remarks from Fed officials that were interpreted as signals that interest rates might rise also weighed on the market
The announcement this week that the US would sell 26 MMBbl of oil from the SPR also put downward pressure on crude prices

A slightly stronger US Dollar also weighed on prices this week
A stronger dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay more for the same amount of goods

IEA raises 2023 global oil demand growth forecast as China reopens (BBG)
The agency raised the global demand forecast by 0.5 MMBbl/d for 1Q2023 and by 0.1 MMBbl/d for this year
As a result, the agency projected in its monthly report that global consumption would increase by 2 MMBbl/d this year to an average of 101.9 MMBbl/d
Following a record decline in 2022, the IEA forecasts that Chinese demand will increase by 0.9 MMBbl/d this year to reach 15.9 MMBbl/d
IEA still forecasts that the market will be in surplus for the year’s first half as Russian output has outperformed expectations
However, the agency sees a 1 MMBbl/d decline in Russian supply by the end of the first quarter
MY TAKE: IEA has a LONG HISTORY of under-estimating oil demand at the beginning of each year. Unless we have a Major Recession, demand for oil-based products will exceed supply by this summer.

Chinese refiners resume purchases of Russian Urals crude (Reuters)
China’s largest state-owned refiners, PetroChina and Sinopec, resumed purchases of discounted Urals crude after a brief pause in late 2022, just before the EU embargo on Russian crude started
China's imports of Urals fell to just 1.45 MMBbl in December from a peak of 9.67 MMBbl in August, according to data from Kpler
The move comes just as demand for transportation fuel is rebounding in China after it ended its zero-COVID policy

Natural Gas

Natural gas prices are down slightly, trading around $2.54 in the prompt month
Weather forecasts are mostly unchanged, although the Midwest’s forecast has cooled by 10 °F in the 11-15 day period
Freeport LNG is now receiving about 0.5 Bcf/d of gas flows as the export facility gradually restarts

Gas flows on Kinder Morgan’s Line 2000 to increase on Wednesday (BBG)
Line 2000 of the El Paso Natural Gas pipeline has seen reduced flows since an August 2021 explosion took the pipeline section offline
EPNG flows west from the Permian Basin through New Mexico, Arizona, and into California
The restart of the pipeline section will increase the amount of supply that can enter the California market by about 600 MMcf/d < California spot market natural gas prices have averaged over $10.00/MMBtu since December.

European energy crisis eased by reduced LNG demand from China (Reuters)
While Europe raced to fill the storage with LNG imports in 2022, China’s imports fell by about 20%
The decline was notable as LNG imports into China have increased at a rate of about 26% per year for the past six years
Some imports were replaced by increased pipeline flows from Central Asia or domestic gas production, but most of the reduction in LNG imports came from subdued demand as a result of China’s Covid policy