Ancova Energy Markets Update
Since the start of Russia’s war with Ukraine, Western leaders have launched an all out assault on Russian energy. To date the sanctions have had the reverse effect. Russian crude flows dipped in the early months but have reversed course as India and China have been buying increasing amounts of Putin’s discounted oil. Russia has now flipped Saudi Arabia as China’s top supplier. Russia is now India’s second largest supplier.
While Russia oil production and revenues are up, Europe is still in the early innings of a major energy crisis, of which has the potential to be one of the more distablizing geopolitical events in recent memory. With European consumers feeling the pain at the pump and in their energy bills, industrial and consumer rationing has already started. The EU is rolling out emergency rationing plans for its 27 member states to cut gas demand by 15% from August to March of next year.
In response to rising domestic energy prices and inflation at historical levels, US President Joe Biden recently visited Saudi Arabia requesting oil-producing Gulf leaders to increase oil production. Even after Biden’s visit it appears Saudi is reluctant to increase more than the stated OPEC quotas. It has long been rumored that Saudi Arabia is at their limit of crude production. In June, Saudi Arabia was significantly short on their OPEC+ allocated quota. Are the supplies there? Or is The Kingdom deliberately restraining themselves? Time will tell, but in the near term there doesn’t appear to be a wave of Saudi oil coming to bail out US consumers paying record high gas prices.
Crude Oil
Index Prices:
At the time of this newsletter, WTI dipped below $100.00/bbl and was trading at $97.08/bbl. Ongoing concerns over rate hikes and a pending recession has kept pressure on crude prices.
The EIA Petroleum Status Report for the week ending July 15th, 2022 reflected a crude inventory decrease of 0.5 mm bbls. Domestic crude production had a minor decrease from the prior week of 0.1 bbls. Refinery run rates continue to run at max rates at 93% utilization. Jet fuel supplied had a large increase from the prior week at 1.6mm bbls.
www.eia.gov/petroleum/supply/weekly
Natural Gas:
With the heat wave sweeping across the US this week, Natural Gas futures spiked above $8. Cooling demand has been at record levels this week and looks to continue in the near term. The Nord Stream pipeline has been down for maintenance the past week and is back up and running as of late last night. While only at 40% capacity, the re-start came as a surprise as uncertainty remains after Russia filed a “Force Majeure” to Germany earlier in the week stating flows to Europe are out of their control. The longer-term weather forecast should start to show some relief as the end of July “typically” marks the hottest days of the year. Look for the bullish trend to get back on track if August prices can remain above the $8 range.
Midcon prices have bounced around the low to mid-$7 range this week with weaker daily production and supply. ANR-OK comes in $.30 off Henry Hub this morning at $7.26 while NGPL-Midcon follows closely behind at $7.25. Production in the region fell to 8.4 Bcf/d, its lowest levels since mid-May, while the month-to-date avg is 4% higher than last year according to S&P Global Commodity Insights. The Scoop/Stack and Williston basin are both trending downward this week leaving total supply in the region just above 19 Bcf/d. With higher forecasted temperatures driving the heating demand upward, look for Midcon Market demand to rise heading into the weekend.
The EIA released storage numbers this morning, coming in at 2,401 Bcf, representing a net +32 Bcf increase from the previous week. This increase was below marketplace expectations +41 Bcf. Stocks were 270 Bcf higher this time last year, however, this week’s levels are still within the 5 year historical range of 2,729 Bcf.
Natural Gas Liquids (NGLs)
Ethane in both Mont Belvieu and Conway showed solid current month gains at 18% each from the prior week. All other MB prices were relatively flat, while Conway Isobutanes and N. Gasolines rose 7% and 6%, respectively. Propane in MB is expected to get a little bump as a result of a lower than expected inventory build. The EIA reported a build of 1.4mm bbls last week, nearly 0.8mm bbls lower than the 2.3mm bbl estimate.
Rig Count Update:
The U.S. oil and natural gas rig count dropped four as of last week, down to 841 and declining for the second consecutive week per rig data collector Enverus. Oil rigs fell six to 647, gas rigs added a couple to 194, its highest tally since Aug. 2019. In the top oil plays, the Permian grew by four to 339, 91 more than a year ago. The Eagle Ford and DJ Basin each added a solo rig, with the Bakken the only major play to drop a rig. SCOOP-STACK kept steady at 43. The three major gas plays stayed flat as well.
ANCOVA DISCLAIMER: This report may not, in whole or part, be disclosed, reproduced or distributed to others unless you receive prior written consent from Ancova. The opinions expressed in this report are based on information which Ancova believes is reliable; however, Ancova does not represent or warrant its accuracy. These opinions represent the views of Ancova as of the date of this report. These opinions may be subject to change without notice and Ancova will not be responsible for any consequences associated with reliance on any statement or opinion contained in this report. This report should not be considered as an offer or solicitation to buy or sell any securities.