Written Commentary
Price Overview
The petroleum complex remained on the defensive as weakness to equity markets in response to the rise in COVID infections and a recovery in Libyan production weighed on values. These concerns kept pressure on OPEC to adjust their production agreement and maintain cuts currently totaling 7.7 mb/d rather than reducing them as planned in January to 5.7 mb/d. A deteriorating demand outlook also continues to weigh on values, as increasing virus spread in Europe and the US is burdening a market that has been characterized by excess inventories that are well above the 5 year averages.
Uncertainty over OPEC’s next move regarding production cuts continues to undermine sentiment. While Russia appears to be taking action with Putin’s support to rollover the current agreement, a key question remains whether other producers who had exceeded their quotas will honor the agreement and their promises to compensate for overproduction. This sets up the meeting by OPEC+ in late November as a key point for the market. Although rising infections are problematic, the strength to the Chinese economy and its viability might begin to be questioned and has potential to weaken values further than currently envisioned.
Natural Gas
With the weekend producing LNG flows that surpassed 9 bcf/d, the market opened firm overnight and traded nearly 10 cents higher before ending the session with a gain of 5.8 cents at 3.253 basis December. The emergence of Tropical Storm Zeta in the GOM added risk premium to the market as it looks likely to become a hurricane in the next 24 hours and is currently projected to make landfall on the already battered Louisiana coast by mid-week. Revisions to the storms track today that pushed if further to the West ignited some overhead selling as concerns regarding onshore LNG facilities resurfaced. Early estimates for this weeks storage are near a 40 bcf injection, which compares to the 5 year average at 67, with some analysts suggesting that ensuing weeks could potentially show withdrawls. With Asian and European LNG prices continuing to firm, prospects remain positive for US exports this winter. We continue to look for prices to trend higher, but with the large storage surplus to overcome, weather demand will need to be watched closely as current long term forecasts point to above average temperatures this winter. This will need to trend colder to assist improving LNG flows at working through the storage overhang.
Charts Courtesy of DTN Prophet X, EIA, Reuters
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