Analysts Look at Benchmark USA Natural Gas and Oil Prices - Rigzone News

Analysts Look at Benchmark USA Natural Gas and Oil Prices | Rigzone

Analysts Look at Benchmark USA Natural Gas and Oil Prices

Benchmark U.S. natural gas and oil prices performed well recently as inventories across both commodities fell below seasonal normal trends, analysts at BofA Global Research noted in a new report sent to Rigzone this week.

“Henry Hub (HH) gas prices spiked higher, awakening to the fact that storage is just +172 billion cubic feet above five-year average levels, down from +378 billion cubic feet in June,” the analysts said in the report.

“The November 2023 HH contract jumped nearly 20 percent in the past week. Furthermore, the November-December spread has also strengthened, rising from -$0.52 per million British thermal unit (MMBtu) in August to -$0.26 per MMBtu in the past week,” they added.

“WTI rallied more than $17 per barrel from late August to late September, while a 50 percent drop in Cushing inventories since late June pushed WTI 1-3 timespreads from a low of -$0.37 per barrel to a high of $4.74 per barrel at the end of September,” the analysts continued.

The BofA Global Research analysts stated in the report that spreads have eased since then but added that they “remain historically strong”.

Outside the major hubs, the outlook for North America oil and gas basis markets is mixed due to inventory levels, winter forecasts, and new pipes, the analysts noted in the report.

“Gas storage levels outside the U.S. South Central region have been tracking near or above five-year high seasonal levels this year and may cause a reckoning in gas basis markets if winter turns out to be warmer than normal, as indicated by several forecasters,” the BofA Global Research analysts warned in the report.

“In Canada, record gas storage in the East, high storage in the West, and stable to higher production should put pressure on AECO basis and potentially flat price this winter,” they added.

“Record Canadian gas flows to the PNW, coupled with higher Permian Westbound flows and already high inventories, should take the risk premium out of So-Cal basis, especially if weather is normal or warmer. We see downside for Rockies and Chicago basis too,” they said.

“In the Permian, Waha basis has steadily marched higher as clarity around pipeline starts and slowing supply eased congestion concerns. Yet, the Matterhorn pipe could still push Waha higher into 2025, but any constraints at Katy would limit Waha improvement,” they continued.

The analysts also highlighted in the report that Cushing storage fell nearly 50 percent over the past 14 weeks, which they pointed out is the fastest decline since late 2017-18 “thanks in part to lower inbound flows from the Permian and Rockies and higher flows to the USGC”.

“Midland-WTI and MEH-WTI weakened in response to the draws, sending signals to boost Permian in-bound supply and slow outbound flows from the hub,” the BofA Global Research analysts said in the report.

“Time will tell whether these moves are sufficient, but we see risk of renewed weakness as PADD 2-4 refinery maintenance ends in late October,” they added.

In its latest short term energy outlook (STEO), which was released on Wednesday, the U.S. Energy Information Administration (EIA) projected that the Henry Hub spot price will average $3.03 per MMBtu in the fourth quarter of this year, $2.61 per MMBtu overall in 2023, and $3.23 per MMBtu overall in 2024.

The EIA forecast in its October STEO that the WTI spot price will average $86.65 per barrel in the fourth quarter, $79.59 per barrel overall this year, and $90.91 per barrel overall in 2024.

In its previous STEO, which was released in September, the EIA projected that the Henry Hub spot price would average $2.95 per MMBtu in the fourth quarter of this year, $2.58 per MMBtu overall in 2023, and $3.24 per MMBtu overall in 2024.

The EIA projected in the September STEO that the WTI spot price would come in at $87.68 per barrel in the fourth quarter, $79.65 per barrel overall in 2023, and $83.22 per barrel overall in 2024.

When executives from 144 oil and gas firms were asked what they expected the Henry Hub natural gas price to be worth at the end of the year as part of the latest Dallas Fed Energy Survey, which was released last month, the executives gave an average response of $3.14 per MMBtu.

The survey also asked executives from 151 oil and gas firms what they expected the WTI crude oil price to be at the end of 2023. The average survey response to that question was $77.48 per barrel.

To contact the author, email andreas.exarheas@rigzone.com

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