Oil & Gas Prices - Mar 28

dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Oil & Gas Prices - Mar 28

Post by dan_s »

Opening Prices:
> WTI is up $0.16 to $72.97/bbl, and Brent is up $0.12 to $78.24/bbl.
> Natural gas is down -1.5c to $2.073/MMBtu. (As of 08:15 AM CDT)

AEGIS Notes with my comments in blue
Oil

Oil remains relatively unchanged amid halted flows from Iraqi Kurdistan and easing banking fears
May ’23 WTI gained 16c this morning to trade around $72.97/Bbl

Oil prices rallied by $3.55/Bbl on Monday, marking the largest single-day rise since October 2022
Prices found support as semi-autonomous Kurdistan stopped exporting 0.45 MMBbl/d via Turkey due to an arbitration decision requiring Iraq's approval for oil shipments
Kurdish officials head to Baghdad today to discuss resuming oil exports through Turkey (BBG)

Additionally, Monday's announcement that First Citizens Bank will purchase deposits and loans from failed Silicon Valley Bank boosted optimism about the banking sector
Equities are trading flat as the market focuses on the banking crisis and the upcoming February CPI report on Friday

Russian crude exports fell by less than Kremlin's pledged 0.5 MMBbl/d output cutback in March (BBG)
Russian shipments fell by 0.123 MMBbl/d for the week ending on March 24, significantly less than the 0.5 MMBbl/d cut Moscow had pledged
No Russian crude was exported to Northern Europe, with demand in China and India still accounting for the majority of exports of Russian crude in 2023
Additionally, Russia’s Deputy Prime Minister Alexander Novak admitted yesterday that Russia will need to find new insurance and re-insurance mechanisms for its oil exports as the West won't insure cargo above the EU and US price cap

Oil consumers rush to increase hedging levels as prices drop, boosting open interest in crude contracts (Bloomberg)
Oil consumers, including airlines, increased their hedging levels when prices plunged earlier this month to guard against a possible rebound in oil prices later this year < Sign that large consumers of oil-based fuels believe that we've seen the bottom of oil prices and that they believe oil prices will be higher in the future.
Swap dealers posted their second-largest increase in long positions in ICE Brent futures and options last week, indicating a significant uptick in consumer hedging activity

Many research shops including Goldman Sachs forecast a rebound in oil prices later this year, which would increase costs for oil users, leading to a rise in hedging activity
Higher hedging volumes have also boosted open interest across the oil market, hitting the highest in a little over a year late last week

Natural Gas

Natural gas trades lower around $2.07, after falling to a multi-week low yesterday
Weather forecasts moderated again today, with the Lower 48 forecast warming by 13.8 °F over the two-week forecast period
The largest change was from the Midwest regions forecast, which warmed by a total of 39.8 °F

House Republicans look to pass energy bill this week (BBG)
The goal of the bill will be to lower energy costs by increasing the speed at which permits are authorized and projects are approved
The bill comes amid a strong push in congress for energy infrastructure permitting reform from both parties
It is expected that Biden will veto the bill, with the administration saying that the bill would only “pad oil and gas company profits”
The chance of this bill getting approved by the Senate and then signed by Biden is close to zero. The Republicans just want to send a clear message that they have a "Common Sense Energy Plan".

China’s gas demand is expected to rise by 7% (BBG)
Despite below-average economic growth from China, which is still in the process of reopening its economy, S&P Global expects China’s gas demand to rise by 7% and LNG imports to increase by 5 million tons
China could potentially receive more gas from Russia via the Power of Siberia pipeline
There has however been a decline in coal-to-gas switching as the country's power grid has ramped up coal generation, prioritizing grid stability
Chinese domestic coal trades at a discount of about $10/MMBtu to spot JKM gas prices
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Mar 28

Post by dan_s »

Trading Economics:
WTI crude futures held steady at around $73 per barrel on Tuesday as investors continued to balance the demand-supply outlook.
> OPEC's de-facto leader Saudi Arabia said the oil cartel should keep supplies steady for 2023 as it navigates a fragile recovery in global oil demand, recently clouded by the turmoil in the banking sector.
> At the same time, sanctions on Russia created uncertainty about supply. Russian Deputy Prime Minister Alexander Novak said the country should increase exports to so-called "friendly" countries, noting that supplies to India jumped to levels not seen in over two decades.
> Meanwhile, a legal dispute with Iraq halted around 450,000 barrels a day of oil exports from the Ceyhan port in Turkey, tightening global markets.
> More forward-looking signals from markets are optimistic, with China's crude oil imports expected to rise 6.2% in 2023 to 540 million tonnes, an annual forecast by a research unit of China National Petroleum Corp showed.

MY TAKE, which I will discuss on today's webcast:
Why oil prices will rise in 2H 2023
> Fear of a recession will fade and the Fed's interest rate hikes will end.
> China's demand for oil will increase significantly this summer.
> Russia's oil exports will continue to drift lower.
> Everything points to demand for oil-based fuels exceeding supply AND transportation fuel inventories are already below normal.
> Per the EIA's 914 report (first look at actual U.S. production) U.S. oil production peaked in October 2022 at 12,417,000 bpd and then declined in November and December. December production was just 12,101,000 bpd.
> U.S. oil production growth will be slower than IEA is forecasting. Why? because very few upstream companies are going to ramp up their drilling programs. Why? The Wall Street Gang demands "financial dicipline" and there is a lack of quality equipment and quality workers.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Mar 28

Post by dan_s »

Pull up a WTI oil price chart (6 months) and you will see that $74 was a previous support level. If WTI can close over $74, there is no technical resistance until $80.

Keep in mind that "Fear-Based Selloffs" seldom last long. The SVB bank failure started the March selloff. Fear of widespread bank failures is now fading.
Dan Steffens
Energy Prospectus Group
KGardiner
Posts: 110
Joined: Mon Feb 08, 2021 5:18 pm

Re: Oil & Gas Prices - Mar 28

Post by KGardiner »

It looks like we will end the winter season about 300 bcf above the 5 year.
As Dan has said many times, there is no Nat Gas Glut!

So is this just paper traders still ditching gas contracts from the warm winter?

Kevin
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Oil & Gas Prices - Mar 28

Post by dan_s »

Kevin: The answer to your question is "probably yes".

Closing Prices:
> Prompt-Month WTI (May 23) was up $0.39 on the day, to settle at $73.20
> Prompt-Month Henry Hub (Apr 23) was down $-0.058 on the day, to settle at $2.030 < This is an unsustainable price for natural gas. It will take time for the imbalance in the futures market to rebalance, but natural gas prices will not stay below $3.00 in 2H 2023.
Dan Steffens
Energy Prospectus Group
ChuckGeb
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Joined: Thu Nov 21, 2013 2:46 pm

Re: Oil & Gas Prices - Mar 28

Post by ChuckGeb »

Oil and gas supply/demand fundamentals look pretty good in a normal year if there is such a thing. I think there is a great deal of fear in the markets due to Fed’s actions to raise rates quickly to counter inflation by slowing the economy. It’s surprising that the first cracks showed up in the front end with banks and not later after debt defaults. The recent announcement of PXD floating a note at 5.5% to among other things pay off a .55% maturing debt is a sign of the times. It is a speed bump for PXD but this scenario for a weaker capitalized company will likely be catastrophic if not going concern impairing. There is purported to be a $trillion of similar debt rolling over in the next twelve months. Think about that.

Oil and gas companies were blessed by high prices in 2022 that resulted in stellar looking balance sheets across the industry. Nonetheless when there is perceived elevated outside risk in the overall market place due to economic uncertainties all trading multiples will likely be reduced. Oil and gas companies stock prices will likely not be spared the contagion of the overall market.

My thinking is 2023 will be year where the underlying objective needs to be capital preservation. Any growth in capital will come on the other side of the storm whenever that might be. Goal is don’t lose your ass this year, hold positions poised to weather the storm, and be ready to put more chips back in the pot at the clear sign of capitulation.

I’m no expert but have learned a few lessons over the years the hard way. Best of luck to all EPG members. Would love to hear others views.
JBtheBrit
Posts: 60
Joined: Sun Jul 10, 2022 8:23 pm

Re: Oil & Gas Prices - Mar 28

Post by JBtheBrit »

@Chuck - I think you are right. The next 2-3 years are going to see a lot of defaults - particularly in Commercial Real Estate and high yield corporates - even without a material downturn - the combo of higher rates and tightened lending/banking environment. It's interesting to see some of the high yield default indicators already starting to tick up. Time to buckle up and hunkerdown... and from a stock perspective hold assets that have good fundementals and robust cash flow. GLTA.
ChuckGeb
Posts: 945
Joined: Thu Nov 21, 2013 2:46 pm

Re: Oil & Gas Prices - Mar 28

Post by ChuckGeb »

FWIW In 2022 I sold a bunch of puts and banked a lot of premiums for expired puts out of the money. It was a great year. I did so comfortably selling positions of names I would be happy owning at the strike price. All with EPG picks.

I have shifted to selling calls on some of my positions I want to hang on to at strike prices 15 to 20% above current pricing. Again these are long term positions that I don't mind letting go at the premium prices and I am more than happy to bank the call premiums until the skies clear.

So far so good.
KGardiner
Posts: 110
Joined: Mon Feb 08, 2021 5:18 pm

Re: Oil & Gas Prices - Mar 28

Post by KGardiner »

Forgive the formatting below.

The below table represents EPG stocks that I either own or am following.
Using the most recent EPG forecast models, and using historic prices for WTI and Henry Hub, from the past 4 months, I worked backward to determine the Average Free Cash Flow Multiplier that Wall Street is currently applying to these stocks. For the most part the multiplier was fairly consistent over the past 4 months.

The next column is the current multiplier that the EPG models use for Fair Market Value.
I thought other folks might find this interesting.

Symbol Wall Street EPG
AR 4.80 6.00
CPE 1.83 3.50
CPG 2.89 4.00
CRK 2.70 5.00
ESTE 1.99 4.50
EQT 4.32 5.00
MGY 4.95 5.50
MTDR 3.99 5.00
NOG 2.07 3.75
OVV 3.19 4.00
PR 3.25 4.50
ROCC 2.11 3.50
RRC 5.62 5.00
SBOW 1.18 3.50
SM 2.51 3.50
VTLE 1.40 2.70

TALO 2.08 3.50

CTRA 5.01 5.00
DVN 4.28 6.00
EOG 6.51 7.50
FANG 4.54 5.00
PDCE 2.56 3.75
PXD 6.04 6.50

KRP 8.66 10.00
STR 7.72 9.00
VNOM 8.91 9.00

AM 6.53 8.00
OKE 8.42 9.50
PAGP 3.43 4.50

As part of this exploration, I also noticed that whatever the current WTI price is, Wall Street assumes that is the price for the next 3 quarters as well. For Nat Gas, they seem to assume Nat Gas will revert to $3 next year, but in the mean time whatever the front month price is assumed for the rest of the year.

I naively thought stocks were about future earnings, but that simply isn't the case right now.

Kevin
aja57
Posts: 337
Joined: Sun May 29, 2022 10:35 pm

Re: Oil & Gas Prices - Mar 28

Post by aja57 »

Chuck, thanks for your thoughts.
How far out are you selling calls?
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