Oil & Gas Prices - May 22

[dan_s]

Opening Prices;
> WTI is down $0.18 to $71.37/bbl, and Brent is down $0.05 to $75.53/bbl.
> Natural gas is down -8.2c to $2.503/MMBtu. (As of 08:02 AM CDT)

AEGIS Notes
Oil

Oil trades lower ahead of U.S. debt ceiling talks
June ’23 WTI lost 18c this morning to trade around $71.37/Bbl
Concerns about a severe economic downturn in the U.S. and slower-than-expected growth in China weigh on prices

Fears of a possible U.S. default, despite its low probability, continue to be one of the most bearish factors
President Biden and House Speaker McCarthy are scheduled to convene later today to discuss preventing a U.S. default
Both equities and the dollar are holding steady ahead of the debt ceiling talks

Furthermore, the net long positions of non-commercial entities like hedge funds are nearing the highest bearish levels since 2011 across all key oil contracts, implying they're braced for a recession < I don't agree with this. I think a low number of long positions are just due to the high volatility of oil prices we've seen is year.

U.S. oil rigs dropped by 11 last week, recording the most significant monthly decline since 2020, marking another week of reduced U.S. rigs
The overall count of active US oil and gas rigs has decreased by 35 in the past month

Additionally, Iraq and Russia have reiterated their dedication to the agreed-upon OPEC+ production cuts, underlining the continued cooperation between the energy sectors of the two countries

Rising Russian oil exports trigger skepticism on production cut pledge (BBG)
Despite the Kremlin's pledge to reduce oil production by 0.5 MMBbl/d, a surge in seaborne exports by 0.268 MMBbl/d from February to May raises doubts about their commitment
Although refinery processing rates fell by 0.372 MMBbl/d in May, persistent high exports suggest that Russia might be utilizing its oil reserves to maintain export levels

Natural Gas

Natural gas prices are down nearly 4% to $2.50 amid cooler weather forecasts
The Winter ‘23/’24 strip is down by 7c to $3.58 and the Summer ’24 strip is lower by 5c to $3.31

Weather forecasts shifted significantly cooler, with the Lower 48 two-week forecast losing 17.7 °F cumulatively
Most of the cooler changes were concentrated in the Northern part of the US, with the Northeast regions forecast falling by 26.8° F and the Midwest’s by 27.3 °F
This would imply a reduced level of gas demand from the power sector over the next two weeks

Department of Energy supports Mountain Valley Pipeline (Reuters)
Equitrans 2-Bcf/d Appalachian pipeline has won the support of the Biden administration, with Energy Secretary Granholm saying that the US needs to focus on energy security as well as the transition to renewables
The Bureau of Land Management issued a Record of Decision for MVP and has moved forward with processing the pipeline’s revised right-of-way application
The project still requires review and permitting in West Virginia, which could continue to delay the pipeline

Global LNG prices continue to fall (Reuters)
The price of LNG delivered to North Asia has fallen below $10/MMBtu for the first time in more than two years to $9.80/MMBtu
The fall in price could spur more buying interest from Chinese importers, as it is believed that utilities in China require a spot price below $10/MMBtu for LNG to be competitive in the domestic market
The Dutch TTF hub, a proxy for gas prices in Europe, is trading around $9.62/MMBtu, encouraging more cargoes to be shipped to Asia than Europe

[dan_s]

Closing Prices:
> Prompt-Month WTI (Jun 23) was up $0.44 on the day, to settle at $71.99
> Prompt-Month Henry Hub (Jun 23) was down $-0.185 on the day, to settle at $2.400 < Volatility is aways high as the expiration date gets closer since all of the paper traders must close their positions since they cannot take or deliver the gas. There are much fewer buyers and sellers of natural gas contracts than oil contracts.

The JUL23 contract for HH ngas should move firmly over $2.50 next week. At least that's the plan today.