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Oil pulls back while gas remains strong
Key benchmarks have dropped from highs seen last week while natural gas, while dipping, is still strong.
External factors have caused oil prices to peel away from the big gains made last week. Prices began falling on Friday, and they’ve subsequently stabilised a little as of Tuesday.
WTI had breached the $71 level while Brent was punching towards the $74 level. Both benchmarks were showing positive movements on Tuesday morning, with WTI up nearly 1% on the day after falling by the same level on Monday. Brent had made 0.6%.
A stronger greenback has been hitting dollar-denominated crude across the week. At the upcoming Fed meeting, markets are expecting to see more concrete stimulus tapering agreements, which has lit a small fire under the dollar.
Elsewhere, the potential collapse of Chinese property giants Evergrande is causing massive ripples around the world. The effects are starting to seep into oil markets as China ponders a potential financial crisis.
Another threat to oil prices is increased supply. Supply/demand metrics have been on a delicate balance throughout the duration of the pandemic. Adding more could upset that.
Nine new rigs have been added to US infrastructure, according to Baker Hughes, bringing the total up to 512.
Despite this, 23% of Gulf of Mexico rigs remain shuttered thanks to Hurricane Ida. We may not be seeing a US oil glut just quite yet, but it is something to think about.
In terms of demand outlook, we all know Delta variant has thrown a rather large spanner in the works this year.
However, OPEC+ has revised its demand recovery predictions for 2022 upward by 900,000 barrels. A mix of strong economic growth and higher fuel consumption should power total annual demand to 100.8m bpd next year, according to OPEC+.
The US’ decision to open up flights to fully vaccinated travellers from the UK and EU will also help generate more demand as trans-Atlantic flights pick up.
A quick look at the most recent US crude inventories report shows a 6.4m barrel drawdown. At 417.4 million barrels, US crude oil inventories are about 7% below the five year average for this time of year, according to EIA data.
Natural gas trading
Natural gas prices started the week by pulling back from the previous week’s highs. As of Monday, prices had dropped from the mid-week $5.60 level to the $5.01 mark.
It’s thought that higher winter-driven demand has already been priced into natural gas contracts, hence the prices we’re seeing now.
In the short term, US weather patterns point to medium to low demand this week, which may help bring prices back down to earth.
Working gas in storage was 3,006 Bcf as of Friday, September 10, 2021, according to EIA estimates. This represents a net increase of 83 Bcf from the previous week. Forecasts called for a 76 Bcf build-up.
As we’re in injection season, the US could be about to fall behind the 3.5 trillion cubic feet needed to satiate winter demand. If conditions are particularly harsh, then prices may rocket as temperatures drop.
For context, 2020’s winter build-up, as of the close of injection season on October 31st, was over 3.9 Tcf.
It looks like there is some catching up to do for US gas stockpiles.
Elsewhere, China’s gas consumption potential is being flagged as “stunning”. Alexey Miller, CEO of Gazprom, has said the world’s second-largest economy’s natural gas consumption is growing at a faster rate than any other Asia-Pacific nation.
According to Miller, China’s natural gas consumption increased by more than 15% in the first half of 2021. Imports increased by more than 23% during the same period.
This will all be music to Miller’s ears. In 2014, Gazprom inked a $400bn supply deal with China to deliver gas over 30 years.
Can oil reach $100 per barrel?
Several factors could push oil towards $100 per barrel as the markets look to sustain momentum. In natural gas, we can see a supply/demand deficit supporting prices.
Despite the Saudi price cut for the Asian market, oil started the week fairly strongly.
Prices stabilised and have continued to hold ground at key resistance levels after OPEC-JMMC monthly talks. At the time of writing, WTI was trading for around $69.00. Brent crude is trading for $72.43.
$70 may be the real test for WTI going forward after the benchmark was pushing towards that region on Tuesday morning.
One important takeaway from oil markets at the start of the week is the size of the drawdown shown in the latest EIA crude inventories support. Crude oil inventories showed one of the highest drawdowns to date, according to EIA data for the week ending August 27th. Stocks dropped by 7.2m barrels from the previous week then. Working US crude oil inventories now stand at around 425.4m – 6% below the five-year average.
Don’t be surprised if this isn’t sustainable – not due to demand, but due to the impact of Hurricane Ida. Much of the US’ oil infrastructure lay in its path, and several rigs in the Gulf of Mexico were closed as the storm passed through. We’re likely to see lower numbers in the next report on Thursday.
Removing Ida’s impact from the equation, If conditions are right going forward, some analysts believe an $100 oil price can be reached if not this year, then in 2022.
OPEC+ is feeling particularly robust with regards to the wider demand picture. It’s upgraded its demand outlook to 4.2m bpd by 2022.
The cartel decided to stick with its 400,000bpd monthly output hikes in its September meeting. It’s a fairly harmonious realm over at OPEC+ HQ right now. September’s discussions took under an hour to reach an agreement – far shorter than the month-long tussle seen in August.
Other factors at play that could push oil towards the $100 mark include:
- Record revenues from oil majors, particularly shale producers – According to Rystad Energy, US shale firms are on course to create record-breaking revenues this year, to the tune of $195 billion before factoring in hedges in 2021.
- Demand recovery in China – China is the world’s largest crude oil importer. It’s not slow to act when containing new COVID-19 outbreaks. The latest Beijing lockdown halted private travel, but now apparently the city is COVID-case free, so it appears these ultra-restrictive lockdown measures work. Reports are now saying Chinese importers have picked up delivery requests and China could now be on the way to full demand recovery.
Goldman is still a firm oil bull. The investment bank estimates prices will hit $75-80 by the end of 2021.
While this is all encouraging, the simple fact is the virus is still knocking around. We are still in a pandemic. Worldwide oil demand recovery is tied in with case numbers. There are indicators that infections across the globe are starting to fall, but there is a long way to go until we’re back to normality.
Natural gas trading
Natural gas prices have continued to soar to regions not seen for years. A mixture of robust heat, flat inventories, and Hurricane Ida’s impact continue to buoy prices.
Weather is expected to heat up in key US demand areas across the coming weeks. Natural Gas Weather rates demand forecast as a medium at the time of writing, but this could increase to high along with rising temperatures.
Supply squeezes are also doing their bit to support prices. According to data from the EIA, the total average natural gas supply fell by 2.3%, or 2.3 Bcf per day, compared with the previous report week.
Drops in output are likely linked with the effects of Hurricane Ida. Much of the US’ gas production infrastructure sat squarely in Ida’s path. Two weeks later, the process of reopening gas facilities is still underway.
Prices could rise further beyond their already strong highs if this is the case. The current supply/demand deficit, particularly in hurricane-hit regions of the US, shows a market imbalance, which is partly why natural gas prices are performing well.
At the time of writing, natural gas was trading at the $4.671 level.
Working gas in storage was 2,871 Bcf as of Friday, August 27, 2021, according to EIA estimates. This represents a net increase of 20 Bcf from the previous week. Stocks were 579 Bcf less than last year currently and 222 Bcf below the five-year average of 3,093 Bcf. At 2,871 Bcf, total working gas is within the five-year historical range.
Oil prices look to stabilise while natural gas rallies
Delta-variant cases continue to weigh on oil markets as crude prices attempt to stabilise. Meanwhile, natural gas appears to be on the cusp of another strong rally despite weekend pullbacks.
Oil started off the week on a subdued footing once again.
The demand picture is under further scrutiny amidst rising Delta variant COVID-19 cases worldwide.
The IEA says it has sharply downgraded its H2 outlook.
“Growth for the second half of 2021 has been downgraded more sharply, as new COVID-19 restrictions imposed in several major oil-consuming countries, particularly in Asia, look set to reduce mobility and oil use,” the Paris-based IEA said in its monthly oil report. “We now estimate that demand fell in July as the rapid spread of the COVID-19 Delta variant undermined deliveries in China, Indonesia and other parts of Asia.”
Goldman Sachs has recalculated its oil forecasts too. It has dropped its global oil deficit predictions to 1 million bpd from 2.3 million bpd in the short term, although it does still expect demand to rise alongside vaccination rates worldwide.
On the other hand, OPEC+ is sticking to its script. It has yet to change its predictions. But with the cartel ramping up production from August onwards, OPEC+’s efforts to balance supply and demand could backfire and force prices downwards. An oil glut is no good for suppliers after all.
We’re due the latest EIA crude storage reports today. Previous reports had shown a small build up, but the most recent figures suggest this was an anomaly.
For the week ended August 6th, US commercial crude inventories dropped 0.4m barrels. Storage levels were 6% below those from this time in 2020. Will we see a higher drop today?
On a more positive note, oil rig counts are up. Baker Hughes says nine rigs were added this week. Total US operational oil rigs now stands at 397 – up 172 from this time last year.
Natural gas trading
After weeks of strong levels, natural gas prices pulled back on Friday. As of Monday, gas had been trading at its lowest levels since July 28th. Prices had reached around the $3.830 mark.
Come Tuesday, and prices were once again heading back towards $4.00.
Natural Gas Weather called for moderate-to-high gas demand at the start of the week, citing high temperatures in the West, Plains and Texas as demand drivers.
However, current price action suggests traders have priced in peak summer temps. We may be looking at a loosening of the supply/demand balance, which may also explain why prices have started to drop away.
But with prices on Tuesday reversing the downward trend, it may be the case that traders are bracing for further hot weather. It’s an interesting scenario. One on hand, it appeared that gas had run out of steam. Now, it’s gaining momentum once more, so it appears we’re not out of cooling season by any means, despite September being only two weeks away
US working gas in storage was 2,776 Bcf as of Friday, August 6, 2021, according to EIA estimates. This represents a net increase of 49 Bcf from the previous week.
We’re still in the midst of injection season. There’s another twelve weeks left before a generalized shift towards winter demand season.
Anything could happen to turn the market bullish or bearish during that time, but it appears we’re experiencing a summer-to-autumn price correction right now, despite the current price rally.
Global Delta cases puts pressure on oil despite US bull run
US oil looks like it’s in great shape, but pressure is being put on prices by rising Covid-19 Delta variant cases worldwide.
EIA storage data records another successive drawdown in its latest report. For the week ending July 23rd, crude inventories dropped by 4.1m on a week-by-week basis. That puts them roughly 7% below the five-year average for this time of year.
We can see US oil stocks continue to drop, which signposts strong demand recovery. Gasoline stocks, which dropped by 2.3m barrels, smashed estimates of a 916,000 drop, fitting this narrative.
The bullish signs for US oil continue. Stocks at the Cushing, Oklahoma hub were seen at 36.299m barrels on Tuesday 27th – down 360,917 from the previous week’s volumes.
Turning to oil prices, Brent and WTI pulled back slightly from their weekend levels to trade at $73.24 and $74.78 respectively on Monday afternoon.
The markets thought support could have come from the bullish state of US oil inventories, as well as developments in the Iran nuclear deal.
Traders were bracing for an Iranian crude glut, should the deal be successfully concluded soon, but it appears that a new deal may be off the cards completely. Good news for the tricky global supply balance.
As of Tuesday morning, however, oil had slid back further. WTI was now at around $71.80, with Brent averaging around $73.40.
It appears oil prices may still run into resistance via slowing manufacturing in key economies. Both China and the UK reported drops in factory output in July, for example.
The big issue here is the Delta variant of Covid-19. Rising cases in China, the US, and in fact the world at large, has the market worrying about the demand recovery implications. Should the world enter a new lockdown phase, travel and manufacturing will likely drop off again. If that is the case, oil demand may fall as well.
It’s a tricky situation. All we can do is hope more people are vaccinated and that those vaccines prove resistant to the Delta variant.
Elsewhere, OPEC+ increased output by 610,000bpd barrels per day in July, reaching its highest levels since April 2020. Saudi Arabia, predictably, led the cartel in terms of output spikes, increasing its outward flows by 460,000bpd.
Oversupply could lead to bearish sentiment, counteracting US oil’s bull run.
Natural gas trading
Natural gas dropped back from its recent highs on Monday but was still trading above the $4.00 mark.
Where next all depends on the weather. Natural Gas Weather forecasts mild demand, although markets will be looking for heatwaves in Europe and the US for strong cooling gas consumption to support prices.
Per Natural Gas Weather’s US outlook: “National demand will ease to lighter levels this week as weather systems sweep across the eastern ½ of the US w/showers, thunderstorms, and highs of only 70s to lower 80s. The West into Texas and the Plains will be very warm to hot with highs of upper 80s to 100s as strong upper high-pressure rules.
“Temperatures will increase across the South and East late next weekend with highs warming into the mid-80s to lower 90s. Overall, MODERATE national demand this week, then increasing to HIGH late next weekend.”
Looking at storage, the EIA reports working gas inventories totalled 2,714 Bcf on the week ending July 23rd. Stocks were 523 Bcf lower than this time last year.
US LNG production appears to be relatively strong at 91.5 Bcf per week, but lower than the 93 Bcf estimated required to keep pace with global demand. Feed gas at key US infrastructure is cutting close to 11 Bcf across the week.
Oil prices stabilise but supply issues send mixed signals
Oil prices are back above $70, but is this sustainable? The trader community appears split over oil’s course. Elsewhere, natural gas keeps its rally going, enjoying its time in the sun.
There appears to be a growing split in the oil trading community.
On one hand sits those who believe the OPEC+ engineered supply deficits will help foster high prices as demand recovers. On the other there are those traders who feel demand is being erased before it can reach its peak, thanks to growing Covid-19 cases and low vaccination rates worldwide.
How will this factor into oil prices? It’s hard to say at this stage. Current prices seem to sit around the fact traders have priced in the worst case scenario.
As of Tuesday, WTI futures were trading for around $71.6.
Brent contracts were exchanging hands for roughly $73.45.
Apart from rising cases in key importers, other factors at play here could put pressure on oil prices.
Supply squeezes maybe a recurring theme until the pandemic is over, even with OPEC & allies tapering up production by 400,000 bpd each month from now until April 2022.
One is China’s clampdown on import quota abuse. Authorities in the world’s largest crude importer are planning a crackdown on the misuse of import quotas. This may create a 20-year low in inbound Chinese oil shipments.
Looking to EIA storage data, inventories increased by 2.1 million barrels in the review period up to July 16th. At 439.7 million barrels, U.S. crude oil inventories are about 7% below the five year average for this time of year.
But there is positive news. Rig counts also continue to rise. Baker Hughes reports the total US oil & gas rig count has increased for the fourth consecutive week, indicating strong future output.
As of week-ending July 23rd, 491 rigs were active in US production areas – the highest level since April 2020. Seven oil rigs were added to counts, although gas rigs stayed static.
Natural gas trading
Natural gas started the week strongly, breaching the $4.00 level, and continuing gains made across last week.
Intense heat in key US geographies is helping power the rally as short-term cooling gas demand intensifies. European weather patterns, however, are trending towards cooler temperatures, which may lower demand here across the rest of the week.
As per Natural Gas Weather: “National demand will be strong this week as hot upper high pressure rules most of the US w/highs of 90s to 100s, including 95-100°F Texas.
“A stronger weather system w/showers and cooler air will push across the Great Lakes and Northeast late in the week and next weekend w/highs of 70s and 80s to ease national demand.”
While US oil rig counts have increased, according to Baker Hughes, gas rig counts have stayed static. As of week-ending July 23rd, 104 gas rigs were operating in key US gas production geographies.
US working gas in storage was 2,678 Bcf as of Friday, July 16, 2021, according to EIA estimates. This represents a net increase of 49 Bcf from the previous week. Stocks were 532 Bcf less than last year at this time and 176 Bcf below the five-year average of 2,854 Bcf. At 2,678 Bcf, total working gas is within the five-year historical range.
Oil retreats following OPEC+ decision as Covid fears mount
Following a month of strong gains, oil price action has retreated.
OPEC & allies finally reached on the 18th last week after nearly two weeks of back and forth. OPEC+ will ramp up production 400,000 bpd every month from August onwards. These increases will stay in place until December 2022.
In practical terms, this should mean lower prices. We’ve seen oil push to new heights during the OPEC+ tussle. Tight supplies were supporting prices. In anticipation of the taps opening up, however, WTI and Brent contracts have dropped back to expected levels.
At the time of writing, oil prices had below the $70 mark for two of the three major benchmarks. WTI is currently trading for $67.15 – the same levels seen towards the end of May.
Brent is trading for around $69.40.
This is partly due to the OPEC decision, but also the very real threat of the global Covid-19 pandemic.
Despite economies like the UK cheering about freedom and lowering restrictions to almost pre-pandemic levels, the virus is still very much a threat. The delta variant, in particular, continues to push infections back to levels not seen since last summer.
This had fed into a growing sense of unease, which may explain the soft price action and retreat we’ve seen in oil prices over the past couple of days. Travel restrictions in Asia, for example, have blunted optimism around jet fuel recovery this year.
On the other hand, US oil stocks continue to fall at a rapid rate. The EIA’s crude oil inventory report for week ending July 9th showed a 7.9m barrel week-on-week fall. Oil inventories are now 8% below the five-year average for this time of year.
While US consumption appears to be healthy, it will be interesting to see how it contrasts with global volumes, particularly if more shutdowns occur.
Some are still feeling bullish. Goldman Sachs, for instance, has reiterated its belief an $80 for Brent will happen in 2021. Brent crude did almost reach that level during the recent rally, but it remains to be seen if oil can make such gains again before the end of the year.
Natural gas trading
Natural gas prices started the week on a bullish footing with prices floating around the $3.70 level.
According to EIA research, US gas consumption was up last week, driven by an uptick in power generation. For the week ended July 9th, total gas consumption was up 2.1% with a higher 3.4% week-on-week increase in natural gas consumed for power.
Despite this, more gas is being held in US inventories. The EIA report states working gas in storage rose 55 Bcf compared with the previous week for a total of 2,629 Bcf. Year-on-year, stocks are lower overall, standing at 543 Bcf less than last year and 189 Bcf below the five-year average of 2,818 Bcf.
A moderate demand outlook for the rest of the week into next week is forecast by Natural Gas Weather. Two weather systems, one bringing showers and cooler temperatures across Central, Southern and Eastern seaboard states, and another bringing hot temperatures in the Northwest, are creating a conflicting demand picture.
OPEC+ deadlock unresolved – what does this mean for the oil trade?
OPEC & allies are yet to reconvene its July meeting as supply pressures mount on the cartel. Will we see the deadlock broken soon?
A week on from OPEC and allies breaking up production tapering talks, the deadlock doesn’t look like it’s going to be shifted soon. The window for higher output in August is closing. This comes despite clamour from the cartel’s various members to take advantage of strong oil prices.
Saudi Arabia and the UAE remain at loggerheads over production volume increases. However, both have locked August supply volumes in with their respective customers.
An upcoming Islamic holiday, coupled with fixed August sales, means reconvening OPEC+ if an accord is reached is unlikely to happen until the end of July or even early August. As it stands, output will remain the same in August as it was in the previous months – assuming OPEC members and allies don’t just go rogue and start pumping more to take advantage of high oil prices.
And there’s the rub. Part of the reason why oil prices are so strong is OPEC & allies finding common ground and tapering production gradually instead of flooding markets with crude.
At the time of writing, oil prices for WTI and Brent had peeled away from highs seen last week but are still performing strongly. WTI futures contracts are at the $74.39 level.
Brent crude is currently trading for $75.45.
August will likely be a story of tighter global supply meeting high worldwide demand. The Biden White House has advised OPEC+ to find a way through and begin its proposed 400,000 bpd production increase.
This comes as EIA data for week ended July 2nd saw one of the highest drops in US crude inventory stockpiles since 2019.
Crude inventories fell by 6.9 million barrels to 445.5 million barrels in the review period, reaching their lowest levels since February 2020. This beat analyst expectations, which forecast a 4m barrel drop.
Gasoline demand surged to a one-week record, but the four-week average of gasoline supplied was at 9.5 million bpd, the highest since October 2019. That helped lower gasoline stocks by 6.1m barrels.
Perhaps in response to the OPEC tussle, or because the conditions are brightening for domestic oil producers, the US rig count has increased for the second week running this week.
According to Baker Hughes, the number of operational US rigs is at its highest level since April 2020 with 378 currently operating.
Natural gas trading
Natural gas started the week on a strong footing, with prices staying above the $3.70 level.
Hotter weather this week into next is expected to cater to heightened cooling demand, as per Natural Gas Weather.
NGA says: “National demand will increase this week as upper high pressure builds back across the East with highs of upper-80s to 90s, while still hot to very hot over the West into Texas and the Plains with highs of 90s to 110s. A weather system with areas of showers will stall over the South Great Lakes and East-Central US with highs of 70s to lower 80s for locally lighter demand.
“National demand will ease late next weekend as weather systems over the Great Lakes and East cool highs into the 70s and 80s, although still hot over the West, Texas, and Great Plains. Overall, national demand will be high this week.”
Broadening the view, the EIA is predicting a decline in natural gas consumption throughout the US in 2021. According to recent research by the energy body, US natural gas consumption averaged 83.3 Bcf per day in 2020 – down 2.2% from 2019. The drop was partly driven by a fall in natural gas used to generate electricity, which was a result “demand destruction” the EIA says.
The energy authority believes consumption will have fallen 1.1% overall by year-end 2021 but will rise by 0.7% across 2022.
Working gas in storage was 2,574 Bcf as of Friday, July 2nd, according to EIA estimates. This represents a net weekly increase of 16 Bcf. Stocks were 551 Bcf less than last year at this time and 190 Bcf below the five-year average of 2,764 Bcf.
Baker Hughes reports the gas rig count has increased. 101 US natural gas rigs are now currently operating in key production areas.
Oil dips ahead of OPEC+ meeting
The oil rally has hit resistance as OPEC and allies prepare to meet for another crucial conference.
Despite starting the week strongly with WTI and Brent trading above $74 and $75 respectively, the oil rally looks like it’s lost a bit of traction today.
WTI prices are now floating around the $73.00 level. Brent contracts are, at the time of writing, trading for around $73.77.
OPEC JMMC’s July meeting takes place on Thursday over a background of rising Asian Covid-19 cases. The Indian delta variant continues its spread, as tensions mount regarding lockdowns and case numbers throughout Asia. Demand recovery in this geography may take longer to get going as a result.
In terms of OPEC+, forecasts suggest the cartel will acquiesce to raising output volumes in line with rising global crude demand. Its expected OPEC+ will bring 500-550,000 bpd back onto global markets from the end of July onwards.
However, OPEC’s latest forecast models suggest this may not be enough. OPEC+’s output may fall short of expected demand by 1.5m bpd in August, according to the cartel, widening to 2.2m bpd by Q4 2021.
Dubai’s ADNOC, a key OPEC member, has already stated it will be dropping export volumes by 15% in September. There is no indicator as to why ADNOC has decided to announce this cut, especially ahead of an OPEC JMMC meeting where higher output is forecast.
If OPEC’s predictions are correct, however, that does give its members space to increase production volumes. But there’s the problem of Iran to contend with.
OPEC members are watching the ongoing Iranian-US nuclear deal talks closely. Iran pumped 2.5m bpd in May 2021. Prior to tighter US sanctions, it was pumping over 3.8m bpd. Adding the 1.3m bpd to global supplies would give OPEC+ less room to increase its own output without tipping towards a market surplus.
However, no breakthrough has been made between Iran and its negotiating partner yet.
On a more positive note, jet fuel is slowly recovering. As of Monday 28th June, worldwide air travel capacity had reached 62% of 2019’s total. The US has been whitelisted by the EU for inbound tourism, while the UK has added several popular tourist destinations, like Ibiza and Malaga, to its quarantine-free green list.
On the infrastructure front, 19 US oil & gas pipeline projects are nearing completion this year. This includes brand new petroleum pipelines, as well as upgrades and overhauls to existing pipework.
The total North American rig count, incorporating US, Canadian and Gulf of Mexico sites, is 587 – some 318 higher than this time last year.
As per the EIA’s storage report for week ending June 18th, US commercial crude oil inventories decreased by 7.6 million barrels from the previous week. At 459.1 million barrels, crude oil inventories are about 6% below the five year average for this time of year. Total motor gasoline inventories decreased by 2.9 million barrels last week and are about 1% below the five-year average.
Natural gas trading
Natural gas started the week on a bullish footing after gaining 8.5% in the previous seven days. On Monday, the $3.50 level had been breached as prices hit highs not seen since November 2020.
Hot temperatures are forecast to sweep across the US, creating higher overall demand as heat builds towards the weekend. Expect to see more demand for cooling gas to offset losses in gas-for-power consumption, as per Natural Gas weather.
As well as the weather, higher natural gas exports may also support prices going forward. Natural gas exports to Mexico jumped 3% last week to 7.0 Bcf per day – new weekly average record for Mexico-bound US gas exports.
Working gas in storage was 2,482 Bcf as of Friday, June 18, 2021, according to EIA estimates. This represents a net increase of 55 Bcf from the previous week. Stocks were 513 Bcf less than last year currently and 154 Bcf below the five-year average of 2,636 Bcf. At 2,482 Bcf, total working gas is within the five-year historical range.
On the infrastructure front, 19 US oil & gas pipeline projects are nearing completion this year. Seven of the total number of pipelines are for gas, representing a mixture of new lines or upgrades to existing infrastructure. This has helped improve transportation from key production hubs to export or transmission terminals and could also support prices going forward.
Can oil hit $100 this year?
Oil is undergoing a sustained rally. Reaching highs not seen since the start of the pandemic, key contracts are on an upward trajectory. Is it sustainable? Will we see an $100 oil price in 2021?
Oil prices retreated slightly on Monday morning from the previous week’s highs, but as of Tuesday growth was back on the cards.
While $80 is the target, especially from Goldman Sachs, some bullish commentators and traders are eyeing up a potential $100 oil price in 2021.
What was unthinkable at the start of the year, is now not outside of the realms of possibility. Many traders and market analysts are taking an ultra-bullish stance.
Lots of factors are at play here. Firstly, OPEC+ has firm control over global oil supplies. Its gradual reintroduction of more crude onto global markets has supported oil prices across 2021 so far. The cartel is keen not to fully open the taps until pre-pandemic oil demand is back.
Goldman Sachs’ oil outlook suggests oil demand will return to normal levels by Q4 2021, feeding into the bullish feeling. A delay in the Iran-US nuclear deal is keeping 1m bpd out of circulation, again supporting prices.
A dramatic drawdown was reported by the EIA in its inventories review for week ending June 11th. Stocks decreased by 7.4m barrels at the end of the review period – highlighting the US’ increasing thirst for crude.
Despite this, OPEC is confident US oil output growth will remain subdued for the rest of the year, even though the US rig count is up to 373 – the highest level since April 2020, according to Baker Hughes.
Natural gas trading
Scorching temperatures across the southern US and California were forecast to support natural gas prices at the start of the week as cooling demand season hits. In fact, reports from Texas and California suggest gas use spiked as homeowners and businesses cranked their AC to counter intense heat.
As of Monday, a tropical storm was brewing in the Gulf of Mexico which may threaten LNG infrastructure and export activity in Louisiana and create bearish conditions in that region.
Total gas stocks stand at 2.427 Tcf, down 453 Bcf from a year ago and 126 Bcf below the five-year average, according to the EIA natural gas storage inventories report for week ending June 11th.
From this, natural gas temperatures remain around the $3.22 level. Cooling season is a transitionary period for gas use, so expect to see fluctuations on prices throughout the hotter summer seasons and into autumn.
Oil prices high ahead of OPEC-JMMC meetings
OPEC-JMMC meeting comes this week with oil prices starting on the front foot. Will we see any drastic policy changes from the cartel? Meanwhile, the transition from heating to cooling system continues in natural gas markets.
Robust demand growth is powering oil prices. OPEC and allies’ optimistic outlook regarding global oil demand is ringing true, particularly in importers with strong vaccination programmes.
Even the potential addition of fresh Iranian crude onto markets should not be enough to destabilise worldwide supply/demand across the rest of 2021.
OPEC+ has put demand recovery at around 6m bpd, fuelled by increasing levels of domestic and international travel as global economies open post-lockdown.
OPEC & Allies kick off meetings on Wednesday, 2nd June. Markets anticipated no major changes to its production cuts policy. The cartel and allies have been gradually tapering up output levels for the past couple of months.
Wednesday’s meeting is all about cementing plans for July and August, i.e. whether to ramp up the taper or keep it in line with the cartel’s original direction.
The OPEC+ group is expected to confirm its May-July plan to ease the oil production cuts by the planned 840,000 bpd in July, OPEC+ delegates and two dozen analysts told Bloomberg News last week.
At this year’s April meeting, OPEC-JMMC agreed to bring 2.1m bpd, back to markets between May-July.
Turning to US crude oil inventories, the EIA reports a drawdown for the week ending May 21st. Commercial crude oil inventories decreased by 1.7 million barrels from the previous week, reaching 484.3 million barrels. US crude inventories are roughly 2% lower than the five-year average.
Natural gas trading
Last week’s natural gas price plunge is being offset by perfect cooling gas demand temperatures and high LNG feed gas volumes in the US.
The EIA natural gas storage report for week ending May 21st showed an 115 Bcf injection that exceeded analysts’ high-end estimates and signaled weaker demand. Natural gas inventories totaled 2,215 Bcf.
Late season coolness including thunderstorms and rain will be hitting key demand areas of the US, Natural Gas Weather reports, which may lightly increase heating demand in the short term. This will be offset by warmer temps later this week, speeding along the transition to cooling season.
LNG feed gas volumes at Texan infrastructure is forecast to reach near-record levels again soon. Intense LNG demand from Asia could help drive liquid natural feed gas levels back towards the 11 Bcf level seen earlier in the year.