Oil & Gas Prices - April 3

[dan_s]

Opening Prices:
> WTI is up $4.36 to $80.03/bbl, and Brent is up $4.61 to $84.50/bbl.
> Natural gas is down -9.3c to $2.123/MMBtu.

AEGIS Notes with my comments in blue
Oil

Oil surges after a surprise announcement by OPEC+ to cut more production
May ’23 WTI gained $4.36 this morning to trade around $80/Bbl
OPEC+ made a surprise cut of 1.66 MMBbl/d on Sunday, which raised the overall cut to 3.66 MMBbl/d (Including October's 2 MMBbl/d cut)
WTI and Brent soared nearly 8% following the announcement before falling back slightly

Iraq and the semi-autonomous Kurdistan region reached an agreement to resume oil exports through Turkey

Additionally, the U.S. Dollar remains low relative to its recent highs, making oil more affordable for holders of other currencies

OPEC+ surprises with more production cuts (BBG, WSJ)
> On Sunday, nine OPEC+ members announced a surprise voluntary cut in production of 1.66 MMBbl/d set to begin in May and last until the end of 2023
> The Saudi Arabian Ministry of Energy said that “this is a precautionary measure aimed at supporting the stability of the oil market”
> Saudi Arabia and Russia will take the lead with reductions of 0.5 MMBbl/d each, followed by Iraq, the UAE, Kuwait, and Algeria.
> Outside of OPEC, Kazakhstan, and Oman agreed to lower output
AEGIS notes that the reduction in production could cause long-term price increases in a delicately balanced oil market. This could result in inflation and create a dilemma for Central banks, which are trying to control inflation while supporting the banking crisis < IMO it will be better for us if WTI stabilizes at $80/bbl for a few months, so higher fuel prices don't trigger a Global Recession. Regardless of what the Fed does, the global oil market is going to be very tight this summer and demand for oil is likely to exceed supply by much more than OPEC's spare capacity by Q4 2023. IEA's next Oil Market Report will draw a lot of attention next week.

Iraq and Kurdistan agree to resume oil exports via Turkey this week (BBG)
Iraq's Kurdistan Regional Government (KRG) and the federal government have agreed to resume oil exports through Turkey this week, with an initial amount of over 0.4 MMBbl/d
The agreement will remain valid until the Iraqi parliament approves an oil and gas law
The Northern Iraq-Turkey pipeline was closed in March following an international court ruling that KRG lacked the approval to export oil from the Mediterranean terminal

Natural Gas

Natural gas prices fall 4% as weather forecasts shift warmer
The Summer ’23 strip is lower by 5c to $2.53, and the Winter ‘23/’24 strip is down 7c to $3.54 < Above what I am now using for 2023 natural gas prices in my forecast models.

The Lower 48 weather forecast shifted warmer by a total of 23.3 °F
The Midwest regions forecast warmed by 30.4 °F in the 6-10 day period, and the Rockies by 38.4 °F over the same period

Gas production continues to rise despite lower prices (Reuters)
Natural gas prices have fallen to a 30-month low, causing some producers to cut back on drilling activity, but associated gas production continues to rise
About one-third of US gas production originates from oil wells, predominantly in the Permian Basin
Lower 48 natural gas production has averaged about 100 Bcf/d this year, up from 98.1 Bcf/d last year, with gas-directed rigs up 16% from last year

Philippines to receive first-ever LNG cargo (Reuters)
The Philippines will be receiving an LNG cargo to fuel a 1,200 MW power plant as the country looks to transition away from coal
The cargo will be delivered to the first of seven new LNG import plants in the country
The Philippines is the newest LNG buyer in Asia

[dan_s]

Closing Prices:
> Prompt-Month WTI (May 23) was up $4.75 on the day, to settle at $80.42
> Prompt-Month Henry Hub (May 23) was down $-0.119 on the day, to settle at $2.097

MY TAKE: When WTI approached the top of the established trading channel ($74 to $81) the automated sell orders were triggered. It will take more bullish supply/demand information (i.e - declining U.S. and OECD petroleum inventories) to break thru the top of the channel. What OPEC+ did yesterday is send a clear message to the market that they want and will defend $80/bbl Brent. Saudi Arabia brokered this deal because they are pissed at Team Biden for not refilling the SPR as they promised.

Summer Blend gasoline requires more black oil to produce. That fact will increase crude oil demand by 2 million bpd from March to May. I expect gasoline prices to move over $4.00/gallon in Texas this summer and over $6.00/gallon in California thanks to that state's super high gasoline taxes. Gavin Newsom's attempt to blame high fuel prices on the refiners is laughable, but the "sheep" in California fall for his lies.