Volatile Times
Market Update
Crude Oil
Today WTI is trading at $81.46/ bbl. The prompt month contract traded up on Wednesday afternoon after the the EIA reported a crude inventory draw and shut-in production due to Hurricane Ian. Crude prices have also been supported by continued increase in demand with shrinking supply and flat production.
Due to Hurricane Ian, 6% of gas and 9% of oil had been shut-in in the Gulf of Mexico. Chevron and BP had shut-in and since restarted most of their platforms in the Gulf.
The next OPEC+ meeting is next Wednesday. With crude falling below $90/ bbl, it is expected that OPEC+ agrees to a production cut to support crude prices.
The disappointing messaging from from officials continued on Wednesday, with US Energy Secretary, Jennifer Granholm, tweeting “prices at the pump should be falling, not rising. Companies need to fix this.”
President Biden originally announced plans to release 180mm bbls/d from the Strategic Petroleum Reserve over six months and was scheduled to end October 2022. Recently it has been announced that an additional 10mm bbls will get released in November 2022. The current level of the SPR is 434mm bbls, the lowest level since 1984. There are concerns of the market reaction once the SPR release ends- the physical market is expected to tighten. In May 2022, Biden said they would begin replenishing the SPR next year when prices are lower. However, many critics argue that introducing the US government as a crude buyer at large quantities, will reinforce higher crude prices.
The EIA Petroleum Status Report for the week ending September 23rd, 2022 was released on Wednesday, and showed a crude storage decrease (-0.2 mm bbls). Cushing storage increased this week by 0.7mm bbls. Refinery run rates had a steep decline from prior weeks to 90.6%% utilization. Crude production had a minor decrease of 0.1 mm bbls. Crude imports decreased from the prior week by 0.5 bpd.
www.eia.gov/petroleum/supply/weekly
Natural Gas
As October contracts close this week and we move into the November trading cycle, Natural Gas prices opened just above $7 this morning. Hurricane Ian is wreaking havoc on Florida and power outages will have a strong play on demand as an estimated 2-3 million are without power this morning. Power restoration looks to move into the next two weeks as additional destruction is possible throughout the southeast. Russia’s Nord Stream pipe remains a hot topic as two explosions have caused massive leaks in the Baltic Sea. Whether or not the incidents were sabotage and a new warning from Moscow seems to be driving the question about European energy supplies heading into winter. As gas prices in Europe continue to rise, a fear of additional attacks on fuel infrastructure are evident. Heading into shoulder season and fall temps soon to arrive, the nervous bearish pricing structure continues.
Spot Prices in the Midcon region continued the weaker trend this week as the Chicago basis hit a $1.43 discount to Henry Hub after averaging an ~ $.80 discount for much of September. With a further widening of the cash basis to Henry Hub, ANR-OK is coming in $1.51 off at $5.10 while NGPL-Midcon is $1.60 back. Much of the lowering is due to competition with Carthage hub in the Haynesville. Per S&P Global Commodity Insights, flows to the Southeast have averaged 2.22 Bcf/d this month, up 5% from last year. With expectations of increased supply from Western Canada, storage deficits remain a lack of concern heading into the winter.
The EIA released storage numbers this morning, coming in at 2,977 Bcf, representing a net +103 Bcf increase from the previous week. This increase was spot on marketplace expectations of + 103. Stocks were 180 Bcf higher this time last year, however, this week’s levels are still within the 5 yr. historical range of 3,283 Bcf.
Rig Count Update:
The U.S. O&G rig count shot up by 18 rigs on the week to 882 (712 horizontal), per Enverus, with the Permian Basin accounting for half of that total. The Permian, at 352, is now at its highest level since early April 2020 and 53 higher than where it started this year at 299. Oil rigs added 15 to 666, with gas rigs picking up three to 216. The combined SCOOP-STACK play kept flat at 47 active rigs.
Natural Gas Liquids (NGLs)
Mont Belvieu and Conway products were all down (with exception of Conway Isobutane - 3% higher), many significantly from the prior week. Notably, Ethane products took the biggest shellacking - down 23% and 33%, respectively. Propanes were hit hard as well, dropping 12% and 14%, respectively. Natural Gasolines, surprising, were only down 3% each on the week.
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