Natural gas waiting on winter

Ponderosa Energy forecast lower natural gas prices several months ago in its Market Malaise: Making Sense of Uncertainty report. We reiterated that forecast in our new report, Long Road to Recovery.

We said prices were likely to tumble below $2.00 MMBtu, and they have. The continued question is how low can prices go, and when will winter demand show up and move prices higher?

The El Nino weather pattern will likely keep temperatures more moderate than normal this winter, but cold will show up. Most forecasters don’t expect those cold spells to be extreme, or to be of long duration. Any upward movement in prices will be short-lived.

Ponderosa has forecast 2016 prices at an annual average of $2.86, though that forecast is based on normal weather. A moderate winter would likely have prices exiting 1Q2016 at multi-year lows, which means summer heat and more cooling demand will be needed to support prices. As for now, the February contract is trading at just $2.05, and April is at $2.19. Prices at that level exiting winter likely mean 2016 will bring prices even lower than what we’ve noted in 2015. Natural Gas

U.S. oil rig count down 21 from last week; 7 fewer gas rigs operating

The number of oil rigs operating in U.S. fields fell by 21 over the past week, according to Baker Hughes’ data released today. A drop of seven gas-directed rigs brings the total active U.S. rig count to 709, which is 1,184 fewer rigs than were active a year ago.

Oil prices had little reaction the news, with WTI remaining more than $1.00 below Thursday’s close, at $35.70/bbl as of this writing, although that was up 35 cents from the intraday low of $35.35. Natural gas is trading at $1.99/MMBtu.

U.S. producers have cut oil rigs in 14 of the past 15 weeks.

Crude oil futures for 2016 are trading at about $42/bbl on the NYMEX, off about $2/bbl over the past week.

Oil pump oil rig energy industrial machine for petroleum in the sunset background

 

Gas storage inventory down 76 Bcf; prices hovering just above $2

By Maria Sanchez
Ponderosa Energy

Natural gas storage inventories fell by 76 Bcf for the week ended Dec. 4, according to EIA’s weekly report published today. The draw was bullish as market expectations were in the 50s to low 60s. Forward prices reacted with increases of 2 to 3 cents after the release.

The draw was also larger than historical figures and compares with a 47-Bcf draw reported during the same week in 2014. The 5-year average for the week is a 65-Bcf withdrawal.

Natural GasThis is just the second draw of the season and it ends the first month of withdrawals under the traditional winter season. Season-to-date, only 129 Bcf has been withdrawn from storage in 2015, mainly due to a late start to the withdrawal season. The 5-year average and 2014 seasons had already reported four consecutive weeks of withdrawals totaling 161 Bcf and 239 Bcf, respectively, for the same period.

U.S. storage inventories remain at 5-year highs. The 3.88 Tcf level is 15.3% above 2014 and 6.5% above the 5-year average. Withdrawals are expected to be below average over at least the next two weeks, as current forecasts call for mild temperatures compared to normal. Natural gas futures prices have traded just above $2.00 for several days, with an intraday low of $2.01 on Dec. 8 for the January 2016 contract.

 

Crude oil inventories down 3.6 million barrels; prices move higher

By Sarp Ozkan

Ponderosa Energy

Crude oil inventories dropped by 3.6 million barrels last week, in line with the total commercial petroleum inventories’ withdrawal of 3.6 MMBbl. Withdrawals for most products were offset by the distillate build of 5.0 MMBbl. Look at our chart of today’s report here: PonderosaEnergyWPSR12042015.

The petroleum inventory withdrawal caused front-month WTI prices to gain $0.60/Bbl, pushing prices up to $38.11/Bbl at the time of writing. Imports moved above the 8.0-MMBbl/d mark last week, showing that the numerous tankers in the Gulf of Mexico are determined to offload, even at low prices.

Refinery inputs were down last week to 16.7 MMBbl/d, amounting to 93.1% of operable capacity, mostly due to minor outages on the East Coast. There is not expected to be planned maintenance this month, so expect utilization rates to return to about 95% until April.

1As expected nothing came of the OPEC meeting on Dec. 4, and the cartel’s output remains unchanged.

The U.S. inventory withdrawals are a positive sign for prices this week, although the longer-term trend remains bearish. Japan’s unexpected jump in machinery orders and Chinese reforms aimed at encouraging imports were also positive for Asian demand potential. These bullish signs were somewhat offset by a strong dollar and weaker demand elsewhere, not to mention resilient supply. Further weakness is still likely to follow.

Need Help? Contact Ponderosa Energy:
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U.S. oil rig count down 10 over past week

The number of active oil and gas rigs operating in the U.S. fell again over the past week, according to data released by Baker Hughes on Friday. Baker Hughes said the number of active U.S. oil rigs was down 10 from last week, to 545, which compares to 1,030 active rigs a year ago. The number of operating gas rigs is at 192, up three from last week, bringing the total rig count to 737. That’s 1,183 fewer rigs operating today than one year ago.

Crude oil has traded lower Friday, with WTI down about a dollar and hovering at about $40/bbl. Brent crude is off 65 cents at $43.19/bbl as of this writing.

Canada lost seven rigs over the past week; there are 177 active rigs there, or 245 fewer than a year ago. The international rig count dropped by 29, to 1,111, which is 197 fewer than the year-ago level.

Rig counts have fallen in most major oil-producing nations over the past several months, but Venezuela has bucked that trend. The country’s government needs money in the midst of a recession and PDVSA, the government-owned oil company, has been adding rigs as it explores for new sources of crude oil.

Venezuela’s rig count is up 19% this year, with more than 70 rigs operating. The OPEC member nation is an outlier in Latin America, increasing its exploration while Ecuador, Columbia and Mexico continue to cut rigs. Venezuela has the largest oil reserves in South America. Money from petroleum accounts for about half of the country’s revenue and for 95% of the country’s earnings from exports, according to Venezuelan government data.

Though Venezuela continues to add rigs, the country’s production of crude oil is off 0.6% from its 2014 average. OPEC as a whole has increased production by 4.7% year-over-year, according to Bloomberg. Venezuela’s oil minister on Friday said his country would push for OPEC to cut production by 5% – OPEC has been producing well above 31 MMb/d this year – in an effort to boost prices, although Venezuela has no plans to cut its own output, which OPEC reports at about 2.7 MMb/d this year.

Oil pump oil rig energy industrial machine for petroleum in the sunset background

 

Ponderosa releases production, price forecasts in ‘Long Road to Recovery’

Crude oil prices have dropped 60% over the past 18 months. Natural gas prices are at their lowest point in almost four years, and will end 2015 with their lowest annual average since 1999. Composite prices for NGLs are at their lowest level since EIA began tracking the sector a decade ago.

That’s the backdrop for the oil and gas industry as Ponderosa Energy explores the current market and looks ahead to the next five years in its latest Market Outlook Service report, Long Road to Recovery. The report presents Ponderosa’s view of the current crude oil, natural gas and NGL markets and provides analysis of the dynamics affecting each commodity through 2020.

LRTRLong Road to Recovery includes Ponderosa’s proprietary data analysis of supply and demand for crude oil and natural gas and utilizes the Ponderosa Energy Production Model. This installment builds on the analysis presented in our three previous reports published earlier this year: The Challenge of Abundance; Over A Barrel: Wild Ride Continues for Crude; and Market Malaise: Making Sense of Uncertainty.

Topics analyzed in Long Road to Recovery include:

In early 2015, Ponderosa forecast WTI crude oil prices would average about $45/bbl for the year. Prices jumped above $60/bbl in Q2 as speculators entered the market and misinterpreted China’s demand for crude. We revised our forecast in late summer, increasing our expected 2015 average of $52/bbl. With that came a caveat that prices would tumble again during fall refinery maintenance, and WTI briefly dropped below $40/bbl and has traded in the low $40s for weeks. The annual average is just below $50/bbl as December begins. Where will prices go in 2016 and beyond?

The global crude market remains out of balance. Supply continues to outpace demand. How will that dynamic impact U.S. crude oil and natural gas markets next year and over the next five years?

U.S. oil and gas production has been resilient in 2015. Why has production not fallen significantly despite low prices? Are U.S. dynamics for exploration and production in line with those for international producers, and what are the implications for the U.S. market?

Production of crude oil and natural gas are tied at the drill bit. When oil prices rise or fall, natural gas prices move accordingly. If natural gas prices rise, supporting production, crude output is likely to rise as well, furthering pressuring prices in an oversupplied market. How will projected low crude prices impact natural gas production relative to demand? What are the price implications for natural gas?

Long Road to Recovery answers those questions and more. Subscribe to Ponderosa’s Market Outlook Service to receive your copy of the report, along with Ponderosa’s earlier reports focused on the markets for crude oil, natural gas and NGLs. Contact Stephanie Broughton or Harry Brookby to learn more. For information about Ponderosa’s previous reports (shown below), contact our information line.

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Distillate crack spreads getting crushed

By Sarp Ozkan
Ponderosa Energy

The crack spread for distillates is at its lowest level in five years.

The reason is simple: U.S. distillate demand is struggling and production of distillates is rising.

Recently, refineries were not pulling back supply due to the high crack spread, which translated to great margins for refiners. However, once refineries came out of the maintenance season – U.S. refineries are back to 94.5% of operable capacity – refineries started making even more distillates.

REFINERYBut the cold weather that was expected to introduce some winter demand for distillates hasn’t shown up; that’s the same demand phenomenon that has caused natural gas prices to struggle. It has culminated in the storage report for the week ending Nov. 27, 2015, to note a 3.1-MMBbl rise in distillate stocks. Because of that, distillate cracks were consequently crushed.

Natural gas has first draw of season

By Maria Sanchez
Ponderosa Energy

Natural gas storage inventories posted a 53-Bcf withdrawal for the week ended Nov. 27, per EIA. The draw was in line with market expectations and also with historical figures as a draw of 42 Bcf was reported during the same week in 2014. The 5-year average for the week is a 48-Bcf withdrawal.

EIA estimates also note that with the first national draw, all five regions are also on withdrawal mode, including the salt and non-salt facilities in the South Central region.

Natural Gas

U.S. storage inventories are now below the 4.0-Tcf mark at 3.956 Bcf, although they remain at 5-year highs. Stocks are now 543 Bcf above 2014, 247 above the 5-year average, and 111 Bcf higher than the previous 5-year max.

Demand for natural gas in the U.S. is up with cooler temperatures, but remains below normal levels. Record low prices due to lack of demand continue with January 2016 trading at only $2.17/MMBtu as of this writing.

Crude oil inventories show another build

By Sarp Ozkan

Ponderosa Energy

Crude oil inventories posted a 1.0-MMBbl build last week, lower than the API expectation of 2.63 MMBbl but in line with the Reuters’ poll of analysts expectations, which averaged 1.2 MMBbl. (Check out the Ponderosa Energy graphic of today’s release here: PonderosaEnergyWPSR11272015 ). Total commercial petroleum inventories increased for a fourth week in a row, posting a 1.8-MMBbl increase, due mostly to builds in distillates (3.1 MMBbl) alongside crude.

These builds were somewhat offset by a draw in propane/propylene of 2.1 MMBbl. The petroleum inventory build caused front-month WTI prices to lose $0.87/Bbl, pushing prices down to $40.98/Bbl at the time of writing. The crude oil stock build was mainly due to the ever-higher imports last week, which were up another 0.4 MMBbl/d. Refinery inputs climbed to 16.8 MMBbl/d, amounting to 94.5% of operable capacity. There is not expected to be planned maintenance in December, so expect utilization rates to stay around 95% until April. Today’s petroleum product build especially highlights the glut, as even with a jump in refinery utilization, we built not only crude oil stocks but product stocks as well.

crude oil barrelsOPEC is set to meet Friday, causing some volatility in prices ahead of the likely decision to keep output unchanged. Nothing will come of the OPEC meeting, and this has largely been accepted in the market already. Demand showed further weakness this week, with Chinese economic data showing further softness. A stronger dollar is still something to keep an eye on; it could be a move to a “safer” U.S. market or because of an increase in interest rates by the Federal Reserve.

Need Help? Contact Ponderosa Energy:
(303) 309-4078
energygroup@ponderosa-advisors.com
www.ponderosa-energy.com

Crude oil inventories post 1-MMBbl build

By Sarp Ozkan

Ponderosa Energy

Crude oil inventories posted a 1.0-MMBbl build last week, lower than the API expectation of 2.63 MMBbl, but in line with the Reuters poll of analysts expectations, which averaged 1.2 MMBbl.

Read Ponderosa’s visual chart here: PonderosaEnergyWPSR11202015

Total commercial petroleum inventories increased for a third week in a row, posting a 2.1-MMBbl increase, due to builds in gasoline (2.5 MMBbl) and distillates (1.0 MMBbl) alongside crude. These builds were somewhat offset by a draw in residual fuel stocks of 1.7 MMBbl. The petroleum inventory build caused front-month WTI prices to lose $0.56/Bbl, pushing prices down to $42.31/Bbl at the time of writing. The crude oil stock build was mainly due to the higher imports last week, which were up 0.4 MMBbl/d. Refinery inputs jumped to 16.4 MMBbl/d, amounting to 92% of operable capacity. There is not expected to be planned maintenance in December, which could see utilization move up to the previous 94% levels observed before October.

crude oil barrelsToday’s petroleum product build makes it even more apparent that we will continue to see total petroleum products inventories rise even when maintenance season is over, the best indication that an oversupply still persists.

Heightened tensions in Syria and Northern Iraq were furthered by the downing of the Russian jet by Turkish military on Tuesday, leaving the market wondering whether Russia will respond and if this will cause supply outages in the region. Additionally, Saudi Arabia’s oil minister made a comment about cooperating with OPEC and non-OPEC producers this week, leading to some wondering if there will be a change in policy. The reality is that nothing will come of the OPEC meeting, with the Saudis likely not willing to allow regional rivals Russia and Iran to gain footing.

Don’t forget that demand is weak too, especially with the economic softness in China and Europe. A stronger dollar, whether it be a function of investors moving their money to a “safer” U.S. market, or because of an expected increase in interest rates by the Fed, can further hurt the dollar-denominated commodity.

Need help? Contact Ponderosa Energy:
(303) 309-4078
energygroup@ponderosa-advisors.com
www.ponderosa-energy.com