Oil & Gas Prices - July 17

[dan_s]

Prices at the time of this post (12:22 CT): WTI at $82.72/bbl and HH natural gas at $2.03/MMBtu

Trading Economics:
WTI oil
"WTI crude oil futures extended gains above $82.50 per barrel on Wednesday, rebounding from three days of losses due to a sharp decline in US oil stockpiles.
> The EIA data showed a decrease of 4.87 million barrels last week, marking the third consecutive week of declines and the longest streak of reductions since September. This was contrary to market expectations of a 0.8 million barrel increase. On the other hand, gasoline and distillate stockpiles unexpectedly increased.
> Geopolitical tensions also supported prices, with a Liberia-flagged tanker attacked by Yemen's Houthis in the Red Sea.
> However, price gains were limited by China's economic slowdown, with Q2 growth at 4.7%, the weakest since early 2023, raising concerns about demand.

U.S. Natural Gas (Henry Hub AUG24 contract)
US natural gas futures fell over 5% to below $2.1/MMBtu, the lowest in more than ten weeks, due to forecasts of milder weather and a drop in feedgas to LNG export plants following the shutdown of Freeport LNG in Texas for Hurricane Beryl.
> Persistent oversupply, with storage levels about 18% above normal, also pressured prices.
> Meteorologists predict near-normal weather across the Lower 48 states through July 24, then hotter-than-normal weather through August 1. Despite this, LSEG forecasts average gas demand will drop from 105.5 bcfd this week to 103.5 bcfd next week.
> Gas flows to US LNG export plants fell to 11.6 bcfd so far in July, down from 12.8 bcfd in June, mainly due to Freeport LNG's shutdown and recent reductions at Cheniere Energy's Corpus Christi facility.
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MY TAKE:
> WTI continues to trade above my forecast of $80/bbl for the 3rd quarter. Lots of noise impacting the Day Traders, so volatility will continue, but I do expect WTI to stay over $80 since we are in the peak demand period for transportation fuels. The WTI futures contracts drift lower in Q4, but just remember that the NYMEX strip is not a forecast. This is especially true for oil prices.
> The U.S. natural gas market is oversupplied, but help is on the way. Three new LNG export facilities are nearing completion and Freeport will be back on line soon. By December, 2024 the U.S. should have 17.8 Bcfpd of LNG export capacity, which compares 11.6 Bcfpd of exports so far in July.
> Natural gas prices are $10.48 in Europe and $12.32 in Asia, so profit margins on LNG cargos are very strong.

[dan_s]

HFI Research
Natural Gas

"We pointed out at the time that with Henry Hub prices rapidly recovering back above $2.5/MMBtu, natural gas producers were on pace to meaningfully increase Lower 48 gas production back to ~102.5 to ~103 Bcf/d by July. This would eliminate the deficit we saw in the market today. In addition, with natural gas storage already bloated, any increase in production will result in worries over a surplus in storage going into winter, which would be bearish on prices.

Since then, Lower 48 gas production hit a high of ~102.7 Bcf/d last week, and Henry Hub is once again testing $2/MMBtu.

Like all things natural gas, the market always tends to swing to extremes. These extremes become obvious to anyone who watches the market closely, and in this case, we think the price drop will meaningfully delay the production recovery we are currently seeing."
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Bottomline: Market Forces + more LNG Export Capacity will rebalance the U.S. natural gas market. It may take six months, but the U.S. natural gas market after 2024 should be much tighter. Best way to play this is to buy gassers that have a lot of their production hedged in 2H 2024.

[dan_s]

Crescent Energy (CRGY) will close the merger with SilverBow Resources (SBOW) before July 31st.

Proforma Natural Gas Hedges
Q3 2024 > 49% at $3.70 & 16% at $3.55
Q4 2024 > 43% at $3.91 & 14% at $3.66
2025 > 22% at $3.98 & 28% at $3.50

I have a HIGH level of confidence in my 2H 2024 and my 2025 forecast for CRGY because of their hedges and they have provided detailed guidance.

My current valuation is $24/share.
TipRanks: "In the last 3 months, 6 ranked analysts set 12-month price targets for CRGY. The average price target among the analysts is $16.71. The price targets range from $13 to $20." CRGY closed today at $12.35.

Timing: CRGY + SBOW merger will close by July 31st. They will announce Q2 actual results the next week. Post-Closing production will be ~250,000 Boepd, which should draw a lot more attention from the Wall Street Gang.