Oil & Gas Prices - Oct 4

[dan_s]

Opening Prices:
> WTI is down $1.76 to $87.47/bbl, and Brent is down $1.71 to $89.21/bbl.
> Natural gas is up 8.9c to $3.038/MMBtu.

AEGIS Notes
Oil

Oil trades lower as macro-economic concerns counter tight supply
November ’23 WTI lost $1.74 this morning to trade around $87.49/Bbl

The market focuses on the implications of interest rates staying higher, especially since key Treasury bond yields (like the 10-year and 30-year) have reached 16-year highs
The US dollar also remains near 10-month highs, contributing to recent pressure on crude prices
I'm sure the nonsense in Washington has something to do with oil being down this morning. Fear of a Government Shutdown is back in the mix.

On Wednesday, Saudi Arabia and Russia reiterated that they would stick to their output cut of 1 MMBbl/d and export cut of 0.3 MMBbl/d through December, respectively, on top of earlier OPEC+ cut
However, Russia may soon relax its diesel ban, according to a Kommersant report on Wednesday citing anonymous sources
According to OPEC’s recent monthly report, the oil market is projected to be in a 3.3 MMBbl/d deficit for the fourth quarter< If this is anywhere close to accurate, OECD Petroleum Inventories will be plunging to record lows measured on Days of Consumption. Raymond James forecast is they will get down to 22 Days of Consumption. They have NEVER been that low.

Keystone flows halted amid tight U.S. crude supply (Bloomberg)
TC Energy's Keystone pipeline flows fell to zero on Tuesday, impacting Cushing delivery hub with already low crude inventory levels
The 0.6 MMBbl/d system, which carries heavy Canadian oil-sands crude from Alberta as far south as the US Gulf Coast, halted shipments by late Tuesday morning, based on Wood Mackenzie data
TC Energy said it performs maintenance on the Keystone pipeline, sometimes operating it at reduced rates
The current Keystone halt coincides with Cushing, Oklahoma's lowest crude inventories for this time of year in nine years

Russia mulls exempting fuel producers from export ban (Bloomberg)
Russia is considering allowing only fuel-producing companies to export diesel while maintaining the ban on gray-market exporters
The initial export ban, which also included gasoline, was aimed at controlling domestic fuel prices ahead of the upcoming presidential elections
While discussions continue, a decision on modifying the ban might be reached this week, according to people familiar with the matter

Natural Gas

Natural gas prices are trading above $3.00, at a six-month high
The Winter ‘23/’24 strip is higher by 7c to $3.38, and the Summer ’24 strip is up 4c to $3.25 < Lines up well with the gas price I'm using in my forecast models.

Lower 48 weather forecasts shifted cooler by 2.3 °F over the two-week period, with most of the change coming from the Midwest region’s forecast

El Paso Natural Gas Pipeline plans small capacity increase (S&P)
The pipeline is looking to expand capacity by about 20 MMcf/d at the Arizona-California border, where pipeline space is often limited
EPNG runs from the Permian Basin through the southwest US and into California
Arizona Electric Power and Southwest Gas were awarded the firm capacity for the expansion

Pacific Northwest water supplies fall to a 22-year low (Reuters)
About one-third of US hydropower generation is located in the Pacific Northwest and generates a significant amount of the region's power
Water levels at the Dalles Dam between Oregon and Washington have fallen to the lowest level since 2001
During early 2023, California received large amounts of rain, refilling many of its reservoirs; however, the Pacific Northwest did not receive as much
The Pacific Northwest usually exports a substantial amount of power, but low hydro generation can reduce that, increasing the need for gas-fired generation and raising power prices
Keep in mind that natural gas prices are "regional". The West Coast market has very little impact on HH gas prices.

[Cliff_N]

From Barron's this AM, the fundamentals are not causing this beat down, recession fears, government nonsense and FED:

Oil Prices Fall Further Despite U.S. Inventories, Saudi Cuts
By

Dan Molinski, Dow Jones Newswires

U.S. crude futures are trading lower for the fourth time in five sessions, down 1.9% at $87.58 a barrel, which if maintained would be the lowest closing price since Sept. 11.

News and events late yesterday and overnight were actually price supportive as Saudi Arabia reiterated its plan to keep a 1M bpd production cut in place until the end of 2023.

Also, trade group API reported a surprisingly large, 4.2M-barrel drop in U.S. crude-oil inventories last week. Oil markets now await the official U.S. inventory data from the EIA, due at 10:30 am ET. A WSJ survey is forecasting no change week-on-week to U.S. crude inventories.

Brent crude also falls, down 1.7% at $89.37.

[dan_s]

Fear Based selloffs don't last.

Reuters: Oil falls over $1 on demand fears, Saudi confirms cuts to year-end.
Oil fell on Wednesday, as pledges by Saudi Arabia and Russia to continue crude output cuts to the end of 2023 were offset by demand fears stemming from macroeconomic headwinds. Brent crude oil futures were down $1.51, or 1.66%, to $89.41 a barrel at 1206 GMT, while U.S. West Texas Intermediate crude (WTI) fell $1.59, or 1.78%, to $87.64 per barrel. The OPEC+ Joint Ministerial Monitoring Committee (JMMC) online meeting on Wednesday kept the group's output policy unchanged, two sources said while the meeting was underway.

Big sell orders at the open trigger stop loss orders, which extend the decline. Computers do the selling in the morning. Bargain Hunters should step up this afternoon.

MY TAKE: Our Federal Government is broken because we have no leadership in the House, the Senate or the White House.

[aja57]

Time for Republicans in Congress to name a speaker outside of the House. How about somebody that has been in Congress and the executive branch, somebody who is from Texas, understands border security,subpoena power, was named by Heritage as the second most conservative whole in the House and ran the largest intelligence bureaucracy in the world. How about a guy who speaks softly and could carry a big stick and would make Democrats shutter. You might like that this idea but say that person doesn't exist. How about Republicans unanimously vote for John Ratcliffe.

[dan_s]

Oil's selloff all related to the "noise" in Washington DC.

Trading Economics:
"WTI crude futures extended losses, falling below $85 per barrel on Wednesday, touching the lowest level since September 1st after the EIA latest report indicated weakening demand for gasoline and following the news that Russia may lift its diesel ban in coming days. Meanwhile, OPEC+ made no changes to the group's oil output policy, following Saudi Arabia and Russia's decision to extend voluntary supply cuts until the end of the year. In the US, EIA data showed crude stocks fell by 2.224 million barrels to 414.1 million barrels last week, but stocks at Cushing, Oklahoma rose for the first time in eight weeks. Gasoline stocks rose by 6.481 million barrels, compared with expectations of a 161,000-barrel rise."

"US natural gas futures broke above $3/MMBtu, driven by reduced domestic gas production and increased exports. October's gas output declined to 102.4 bcfd from 102.9 bcfd in September and a record 103.1 bcfd in August. Furthermore, warmer-than-usual weather is expected in the US until October 19. In addition to these factors, natural gas exports to Mexico are rising, with expectations of further growth when New Fortress Energy's plant starts exporting liquefied natural gas (LNG). However, the total volume of natural gas supplied to the seven major US LNG export plants has remained relatively stable compared to the previous month in October, and it still falls short of the record levels observed in April. Cove Point, which halted operations around September 20, is expected to resume production within the next week or so."

[ChuckGeb]

If the sell off is based upon noise in Washington and lack of confidence thereof, we have a long way to go yet before we hit bottom.

i do like the nomination of John Ratcliffe for Speaker. I second it. Should we all call out Congress rep. Phone number for switchboard is 202-224-3121

[aja57]

Chuck, I reached out to my former congressman and friend/colleague, Dr. Brad Wenstrup who is the head of the subcommittee on Covid. He thought it was a great choice , talks to Ratcliffe regularly. But congressmen... do what they do....which is nothing.

[ChuckGeb]

Really hard to believe with no Speaker and 42 days to go to funding the government, they decided to take the rest of the week off and return Tuesday mid week.

[dan_s]

Closing Prices:
> Prompt-Month WTI (Nov 23) was down $-5.01 on the day, to settle at $84.22
> Prompt-Month Henry Hub (Nov 23) was up $0.013 on the day, to settle at $2.962

Today was Paper Traders needing to close long positions due to margin calls and just FEAR. Fundamentals still point to a grossly under-supplied oil market. Just keep in mind:
> Q3 results should beat my forecasts since oil and gas prices were higher than what I used in my models.
> Republicans will elect a new Speaker next week and things will calm down in Washington.
> U.S. natural gas market does seem to be tightening up.