Oil & Gas Prices - Feb 24

[dan_s]

Opening Prices:
> WTI is up $0.23 to $75.62/bbl, and Brent is up $0.28 to $82.49/bbl.
> Natural gas is up 1.1c to $2.325/MMBtu. < APR23 is now the front month NYMEX contract.

AEGIS Notes
Oil

Oil rebounds but heads for a modest weekly loss
April ’23 WTI gained 25c this morning to trade around $75/Bbl
Crude reversed earlier gains after hotter-than-expected PCE data (up 0.6%) bolstered the case for Fed to keep rates higher for longer
Yesterday, the EIA reported another large crude build (7.6 MMBbl), which brought U.S. inventories to their highest since May 2021
Also weighing on prices this week was a strong US dollar that is at a three-month high
Concerns about a slowdown in the economy persist despite a recovery in Chinese demand and a potentially tightening Russian supply

Diesel floods the EU as the Russian gap is filled with barrels from the east (BBG)
Initial Vortexa estimates show that Europe will import 1.55 MMBbl/d of diesel or gasoil-type fuel this month, slightly more than January's volumes
Europe was still able to import large amounts of diesel in February, largely because imports from the Middle East and Asia filled the Russian deficit
Diesel margins in Europe —the profit made from refining the fuel from crude—have declined steadily this month amid resilient fuel supply and weaker demand brought on by mild winter

Natural Gas

Natural gas prices are trading higher this morning, around $2.33
Weather forecasts have mostly shifted to warmer
The Northeast regions forecast gained 11.5 °F in the 6-10 day period, and the Southeast regions forecast gained 8.1 °F in the 11-15 day period
Yesterday the EIA reported a storage withdrawal of -71 Bcf, which is 92 Bcf less than the five-year average withdrawal for the corresponding week

Gas producers reducing activity (BBG)
The number of rigs operating in the Haynesville region has declined from a peak of 72 in December to 70 as natural gas prices have declined
Drilling by private producers has fallen 20% since December, and activity by all producers is expected to drop by as much as 50%, according to NexTier Oilfield Solutions
Chesapeake and Comstock have both said that they would be dropping rigs and reducing activity in the Haynesville region
Natural gas in U.S. storage facilities was 289 Bcf above the 5-year average on February 17, which is within the 5-year range and is tiny compared to the annual demand for U.S. natural gas of ~37.4 Tcf.

China Gas Holdings signs LNG supply deal with Venture Global (Reuters)
The company has signed two 20-year LNG supply deals for a total of two million tons per year starting in 2027
The LNG will come from Venture Global’s planned Plaquemines LNG facility
Pricing in the contract will be linked to Henry Hub, and the terms of the contract allow for the buyer to either import the gas to China or trade it in the global market

[KGardiner]

If the US gets more of these large 20 year LNG contracts, and we move from Tier I to mostly Tier II and III acreage, Henry Hub is going to soar in a few years.

Kevin

[dan_s]

The US has massive natural gas reserves. What's going to make it very difficult for US gas production to keep up with demand after 2024 is the lack of pipeline access.

Now that the paper traders have taken their losses on the FEB23 and MAR23 NYMEX contracts, we should see natural gas prices drift higher. The selloff in January and February was primarily due to Sellers exceeding Buyers in the futures market (the same reason WTI futures went negative in April, 2020).

There is not a "glut" of gas supply today. The "Right Price" for US natural gas is much higher than $2.50/MMBtu. < 6 MMBtu of natural gas has about the same energy content of one barrel of oil. Natural gas prices in Asia and Europe are ~$15/MMBtu.

[Fraser921]

>Now that the paper traders have taken their losses

They rose 4 straight days into the close. Paper traders took gains

[dan_s]

The "Paper Traders" purchased those MAR23 futures at MUCH HIGHER PRICES than they were able to close them out. During the last few days of a NYMEX contract some utilities will buy futures in order to take physical delivery.

"Paper Traders" are not "Day Traders".

[dan_s]

Closing Prices:
> Prompt-Month WTI (Apr 23) was up $0.93 on the day, to settle at $76.32
> Prompt-Month Henry Hub (Mar 23) was up $0.137 on the day, to settle at $2.451 and APR23 (now the front month) was up $0.155 to close at $2.587