Oil Slides as Hormuz Transit Set to Resume Under Ceasefire

Crude prices plunge on US-Iran ceasefire

• The WTI prompt-month contract fell $19.55 to $93.40/bbl on Wednesday morning (7:30 AM CT)
• Crude futures dropped sharply after the US and Iran agreed to a two-week ceasefire tied to reopening the Strait of Hormuz
• Pakistan’s ceasefire proposal provides both sides room to de-escalate, marking a shift away from prior maximalist positions but remaining an early step in what are expected to be difficult negotiations, with talks set to be hosted Friday
• Iran will allow transit through the Strait during the ceasefire but under coordination with its armed forces and subject to technical limits, while insisting on maintaining control in any longer-term agreement
• Timing of normalized transit remains uncertain given the Strait handles roughly one-fifth of global oil and LNG flows, with the earlier halt in traffic driving the recent price spike
• The latest STEO from the EIA estimates crude production shut-ins averaged 7.5 MMbbl/d in March and will peak near 9.1 MMbbl/d in April, with the agency assuming disruptions persist through the end of April

Natural gas falls as L48 production continues to slide

• Natural gas is down -9.4c to $2.776/MMBtu (As of 07:30 AM CT)
• Production slipped -0.5 Bcf/d today marking a fresh two-week low (Criterion)
• Canadian imports fell -0.9 Bcf/d as the short-lived rescom demand unwound
• • Total demand eased -4.4 Bcf/d as temperatures rebound
• There was around a 9°F gain in population weighted average L48 temperatures this morning
• • Temperatures are expected to hover above the 10 year average throughout the forecast period
• LNG feedgas demand sharply rebounded 1.1 Bcf/d back to 20.5 Bcf/d

West Texas spot and forward gas prices plunge (S&P)

• Takeaway capacity constraints compounded by pipeline maintenance are sending Waha cash price to fall close to $-7.00/MMbtu
• Egress capacity is expected to rise throughout the year, but the Waha Fixed forward curve is negative until later this year when Blackcomb and Hugh Brinson pipelines come online