Winter is Coming
Ancova Markets Update
Crude Oil
On Monday, WTI was trading at $74.00/bbl, nearly the lowest in a year. WTI rebounded later in the week upon crude inventory draws and currently WTI is trading at $82.08/bbl. The EIA reported a massive draw of 12.1 mm bbls of crude storage. The current crude storage levels are 8% below the five year average.
Enterprise has just been given approval from the Biden Administration for 2mm bb/d oil export terminal in Freeport, TX. The terminal will be 30 miles off the coast and connected to on shore Enterprise facilities via pipeline. The terminal will allow for more efficient oil-loading and reduce transport costs. Construction for could begin as soon as mid 2023 with an estimated in-service date of late 2025.
The European Union is in the process of setting the Russian crude price cap at $60/bbl. It is expected to be implemented December 5th. The E.U. is still unsure how Russia will respond. Supporters of the cap, including the U.S., say the cap will prevent higher crude prices while still being high enough to be approved by the E.U.
With rising Covid cases in China, fear of additional lockdowns, and ongoing protests, China’s crude oil demand is expected to decline. The market has different takes on whether the future demand decline is over or understated.
The EIA Petroleum Status Report for the week ending November 25th, 2022 was released on Wednesday, production stayed flat for the third consecutive week at 12.1mm bbls. Crude storage is at 419.1 mm bbls, which was a 12.1 mm bbl decrease from the prior week. Current crude storage levels are 8% below the five year average for this time of year. Cushing storage dropped 0.4 million bbls to 24.3mm. Refinery run rates continue to climb are running at 95.2% utilization rates.
www.eia.gov/petroleum/supply/weekly
Natural Gas
Natural Gas prices started the week lower with a warming trend and unrest in China contributing to the slide. By mid-week prices had made their way into the low to mid-$7’s as some of the longer-range forecasts have colder weather making its way in. All eyes remain on Europe as the winter is now looking a bit colder, and storage management will be key as Russian imports shot up over 40% this week. The volatility looks to keep prices in a wait and see pattern for now. US production nearing all-time highs and a possible railroad strike are both watchful items in the coming days as January contracts continue to hold their bullish structure. The bumpy ride seems poised to continue.
Midcon supply jumped to 22.45 Bcf/d, its highest level in the past eight days, according to S&P Global Commodity Insights. Inflows to the region are 70% above last year’s levels, coming in at 2.45 Bcf/d. Outflows, on the other hand, trail last year’s volumes while averaging 6.4 Bcf/d. Midcon demand is expected to follow suit and fall to 4.55 Bcf/d. as temps in the region continue to come in below average. The Midcontinent closed out November with cash prices dropping. Chicago city-gates comes in a $0.88 discount to Henry Hub, while ANR-OK is $0.97 off at $5.83 and NGPL-Midcon is $1.25 back at $5.55.
The EIA released storage numbers this morning, coming in at 3,483 Bcf, representing a net +81 Bcf increase from the previous week. This increase was slightly below marketplace expectations of +85. Stocks were 89 Bcf more this time last year, however, this week’s levels are still within the 5 yr. historical range of 3,569 Bcf.
Natural Gas Liquids (NGLs)
Mont Belvieu and Conway spot prices were mixed - the biggest loser being MB Propane with an 11% decline from a week ago. MB Ethane, Conway Propane and Isobutanes were all 6% lower. MB N. Gasoline and Isobutanes were higher on the week at 5% and 3%, respectively. Conway N. Gasoline and Ethane were both 2% higher. Products as a percentage of WTI were mixed as well (see below) as crude has maintained its price in the low $80s.
Talk Energy Podcast
This episode’s guest is Jamie Heard, the Manager of Capital Markets at Tourmaline Oil Corporation.
Jamie is also a great follow on Twitter where he regularly provides quality content and insight into the oil and gas markets.
This episode we discuss investing in energy right now and what Jamie paying attention to in the oil & gas equities space. We talk natural gas fundamentals and the future views on supply and demand growth.
We get into how the recent increases in the cost of capital will impact infrastructure investments. Lastly, we riff on gas’s role in the electric grid and how the energy landscape is changing.
Hope you enjoy the show!
ANCOVA DISCLAIMER: 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.