Oil Prices used in my forecast models - June 8

[dan_s]

Today I will be updating all of the Sweet 16 forecast models using the following oil & gas prices.
For each company I adjust their "realized" oil & gas prices for regional price differentials and for their hedges. How I do that is shown at the bottom of each individual company's forecast model. < All of the forecast models on the EPG website are "macro driven" Excel spreadsheets. You are encouraged to download them to Excel on your computer and play with the model assumptions at the bottom. Future production volumes and commodity prices are what drive the stock valuations. I believe the models are valuable tools that you should be using during your own due diligence BEFORE you invest in an individual stock.
The NGL prices used in each model are more of a "Best Guess" on my part. For most companies NGLs are a low percentage of their production, so as long as the NGL prices used in the model are "in the ballpark" it is OK.

2024 prices WTI / HH natural gas
Q1: $76.91 / $2.10 < Actual prices
Q2: $78.00 / $2.25
Q3: $80.00 / $2.50 < IMO the recent dip in WTI was an overreaction to the OPEC June 2 announcement. See HFI comments below.
Q4: $82.50 / $3.00

2025
Full year average $80.00 / $3.50 < If we have a HOT summer and three big LNG export facilities come online as scheduled, HH natural gas prices could go much higher.

HFI Research Note June 8
This week was best characterized as an overreaction (to the June 2 OPEC announcement) supported by some fundamental truth. For many of us who follow oil market fundamentals closely, the drop to $72 was exaggerated, and to my surprise, the CFTC report capturing up to this week's Tuesday's data showed perfectly why that was the case.

This is the 6th largest lone position decline (in WTI futures contracts) since 2011. If you look at total net-length, oil long positioning is now at the lowest level in the last 5-years. This is even lower than March/April 2020!

While some of you may observe that the drop in positioning could be a reflection of sentiment (to the bear side) on oil market fundamentals, we would argue otherwise. Yes, EIA oil inventories should large total liquid builds the last two weeks, but those builds will reverse as oil inventories should start to draw globally.
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MY TAKE:
> Just like in early 2020 (peak of the Pandemic Fear), the Paper Traders overreaction reaction will reverse soon. Shorts will be forced to cover.
> There is still significant geopolitical risk to oil supplies.
> OPEC (controlled by Saudi Arabia) wants Brent over $80/bbl and they will not unwind the cartel's production quotas if they think doing so will push oil prices lower. Saudi Arabia has already made public statements supporting this.
> U.S. and OECD petroleum inventories for the Big Three (crude oil, gasoline and diesel) are below normal and likely to decline further in June/July.
> I will be discussing why U.S. natural gas price could go much higher in this weekend's podcast.

[Petroleum economist]

Dan, I fully agree with you.
All that happened last weekend was that OPEC said that they would extend their oil cuts into Q3 and that they would consider an extension for Q4, based on market circumstances. Nothing special.

The oil price in Asia and Europe initially did not react. Only after the US opened and some US analysts put all kinds of spin and interpretations on it, the oil price declined by -3.6%. The market always exaggerates. I am confident the oil price will bounce back.

[dan_s]

All of the Sweet 16 forecast/valuation models have been updated for my adjusted oil & gas price deck. I might be a bit too high on my oil price, but I also might be too low on my natural gas price.

In my opinion, the "Right Price" for WTI is above $80/bbl.

I will be recording a podcast this afternoon focused on why U.S. natural gas prices could go much higher in 2025.