Oil & Gas Prices - Feb 28

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Oil & Gas Prices - Feb 28

Post by dan_s »

Opening Prices:
> WTI is up $1.98 to $77.66/bbl, and Brent is up $1.57 to $84.02/bbl.
> Natural gas is down -8.3c to $2.648/MMBtu.

AEGIS Notes with my comments in blue
Oil

West Texas Intermediate was 2.5% higher Tuesday morning as traders weighed multiple competing market factors
Despite both uncertainty and competing bullish and bearish variables, oil market volatility is falling
Brent crude is set to finish February with the smallest monthly range since June 2021 < Keep in mind that Q1 is the low point for oil demand each year. Demand for gasoline and diesel increases by more than 2 million bpd around mid-Q2. See the chart in the middle of page 2 in the newsletter. When OECD inventories start falling in Q2, the price of Brent will move toward and eventually over $100/bbl.

Bullish pressure is emerging as India, one of the Kremlin’s crude lifelines is experiencing increasing pressure from financiers wary of breaching Western sanctions (BBG)
Downstream and banking execs are now needing to prove Russian imports comply with a $60/Bbl price cap
Indian executives said refiners are scrambling, and the added scrutiny could slow down the pace of Russian imports
AEGIS notes that India has been a major outlet for Russian crude exports following sanctions imposed by G7 countries

The oil market’s most binding constraint is from refined oil products and waterborne transport rather than well-head production, according to Goldman Sachs (Bloomberg)
Oil products are displaying higher implied volatility than crude
The change in Russian crude flows has helped balloon oil on the water; now more than 100 MMBbl y-o-y
A lot of the U.S. refiners are now doing annual maintenance ("turnarounds"). This leads to falling inventories of refined products. They will need to ramp back up to more than 95% of design capacity to keep up with demand in June; increasing demand for crude oil.

Natural Gas

Natural gas is down about 3% to trade around $2.65
Weather forecasts have shifted warmer today
Forecasts for the Northeast, Midwest, and South Central regions all shifted warmer, while the West and Rockies shifted cooler

Gunvor could exit Tellurian deal (Reuters)
If Tellurian’s Driftwood LNG is unable to obtain project financing and full construction authorization by February 28, Gunvor could cancel their supply contract
Vitol and Shell canceled their own contracts with Tellurian last year, but Indian gas distributor GAIL said this month they are looking at buying a 26% stake in the project
Tellurian said on February 14 that the Driftwood project needs to raise a total of $11.7 billion through a mixture of debt, mezzanine financing, and equity offerings

IEA says Chinese gas demand a bigger risk for EU than Russian halt (BBG)
A resurgence in Chinese gas demand could have a larger effect on EU gas storage levels than a complete stoppage of flows from Russia
A bullish scenario for Chinese demand could lead to China’s LNG imports rising by as much as 35% in 2023 < WOW!
The EU has warned that European nations will still need to be disciplined with gas consumption despite inventories being well supplied
< I expect "Round Two of the Mother of All Bidding Wars" for LNG shipments to start this summer.
Dan Steffens
Energy Prospectus Group
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Feb 28

Post by dan_s »

Trading Economics:
"WTI crude futures rose almost 2% to above $77 per barrel on Tuesday, underpinned by optimism that China's economic recovery will spur fuel demand. Investors expect China's oil imports to hit a record high in 2023 amid rising demand for transportation fuel and as new refineries come online. On the supply side, Russia revealed its plans to cut oil exports from its western ports by up to 25% in March, exceeding its announced output curbs of 500,000 barrels per day. Still, the US benchmark is down more than 2% in February, on track for a fourth consecutive monthly decline amid lingering concerns about a recession-driven demand downturn. Hotter-than-expected US economic data fanned concerns of more Federal Reserve interest rate hikes that could weigh on demand at a time when inventories continue to rise. The latest EIA report also showed that US inventories rose by 7.648 million barrels to 850.6 million in the week ending February 17th, the highest level since September."

IMO the only thing keeping a lid on oil prices (other than the seasonal low point for crude oil demand) is the FEAR of a recession. This is bullish because when FEAR is the reason for depressed commodity prices, all we need is less FEAR for prices to rise. Fears seldom turn into reality.
Dan Steffens
Energy Prospectus Group
aja57
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Re: Oil & Gas Prices - Feb 28

Post by aja57 »

Dan, do you think that oil and stock prices are depressed because big ESG ETFs are not buying?
Interesting change of events for Vanguard moving forward.
https://www.zerohedge.com/markets/vangu ... e-politics
dan_s
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Re: Oil & Gas Prices - Feb 28

Post by dan_s »

ESG may have something to do with it, but I think the "Fear of the Fed" is the biggest reason. Every day the cable news outlets talk about a recession just ahead. Even total BS repeated day after day gets the sheep to believe it (i.e. - paper masks with keep you from getting Covid).

There is and maybe always will be a lack of confidence in the commodity prices. The big drop in natural gas prices sure didn't help with that. It was so "counter-intuitive" considering how large the draws from storage were the last two weeks of December. The high volume of trading on the futures market definitely causes the volatility.

Plus, the energy sector did so well in 2022, outperforming all of the other sectors, that some profit taking was expected.

Once we get through the first quarter I expect the stocks to do a lot better. All of our model portfolio companies are in MUCH BETTER shape than they were a year ago and they are still very profitable at current commodity prices. The fundamentals for oil definitely look very good and natural gas got extremely oversold.

The charts on page two of the newsletter, if accurate, point to WTI going much higher than $100/bbl by the end of Q3. OECD Petroleum Inventories really cannot go below 25 Days of Consumption without creating a Bidding War for crude oil. Without Russian oil production growth, I don't think that OPEC+ can bring much more oil to the market.
Dan Steffens
Energy Prospectus Group
KGardiner
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Re: Oil & Gas Prices - Feb 28

Post by KGardiner »

I have to agree with Dan.

I follow the Fed and Bond markets quite closely. Every time either even gets the sniffles, oil prices fall. If Bond Rates rise or the Fed raises its Funds Rate, this strengthens the dollar and lowers the price of oil. As a result energy stocks fall. If inflation rises or jobs are too strong the Fed might raise rates, so oil falls.

From my perspective, a 1% rise in the dollar should produce a 1% drop in oil. However, the Fear of the Fed makes the oil drop larger and stocks even larger. To me it seems like nothing more than Fear. Of course we do have seasonality which leads to less crude demand and rising inventories this time of year, but that will reverse itself by mid March or so.

Kevin
ChuckGeb
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Re: Oil & Gas Prices - Feb 28

Post by ChuckGeb »

For a credible view/ risk assessment of recession potential and impact see the link below:

Don't Be Fooled: A Hard Landing Lies Ahead For The Economy (And Markets) | Stephanie Pomboy
https://www.youtube.com/watch?v=SVx2tn38rF4

Stephanie is not your typical CNBC talking head.

I am a believer that the Fed is committed to putting us into a recession to curb inflation . There are industries that should be viewed with caution.

I think of all sectors in the economy, commodities are the best place to be. The fact that most of the EPG Sweet 16 and Dan's picks have shored up their balance sheets puts them in a good position to weather whatever economic storm lies ahead. The supply/demand balances seem to be a cushion against a major shock to oil companies.

These are just my views and something worthwhile to view for anyone interested in more of a deep dive.
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Feb 28

Post by dan_s »

Good comments. As a group, the Sweet 16 balance sheets have never been as strong as they are today.

Closing Prices:
> Prompt-Month WTI (Apr 23) was up $1.37 on the day, to settle at $77.05
> Prompt-Month Henry Hub (Apr 23) was up $0.016 on the day, to settle at $2.747 < Nice comeback after trading lower in the morning.
Dan Steffens
Energy Prospectus Group
KGardiner
Posts: 110
Joined: Mon Feb 08, 2021 5:18 pm

Re: Oil & Gas Prices - Feb 28

Post by KGardiner »

Thanks Chuck,
I really appreciated the Stephanie Pomboy link.
Kevin
ChuckGeb
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Joined: Thu Nov 21, 2013 2:46 pm

Re: Oil & Gas Prices - Feb 28

Post by ChuckGeb »

We have to stick together and info support is important in tough and uncertain times. I've been thru these cycles before. Have to keep your head and avoid using leverage to keep your principal intact.
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