January 31, 2020

January 31, 2020
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  • WTI is down 6c to $52.08/Bbl, and Brent is up 6c to $58.35/Bbl
  • Oil prices are headed for the largest monthly drop in over eight months as the coronavirus spreads causing demand decline fears
    • Price has fallen about 15% in January as the certain cities in China are on lock-down and the virus has yet to peak
    • China said it will offer force majeure support to companies affected by the virus (Bloomberg)
    • The WHO has declared a public health emergency, but did not restrict commerce
    • The U.S. government has told Americans not to travel to China
  • CBOE/Nymex oil volatility index climbed to 39.8, the highest since mid-October (Bloomberg)
    • Brent 2nd-month put skew rose to 5.7ppt Thursday
      • This means that puts are more expensive than an offsetting call – making some structures unattractive
      • Costless collars become tighter under a put skew environment as the put becomes more expensive than the corresponding call
  • Natural gas is up 0.6c to $1.835/MMBtu
  • The EIA reported a -201 Bcf withdrawal for the week ending January 24, the largest withdrawal of the season
    • Despite the bullish numbers, prompt-month prices fell following the report suggesting that the poor winter weather outlook may be fairly baked into the curve now
    • AEGIS notes there is some further downside risk to prices in the spring, but we feel the forward curve has been excessively punished
    • Storage markets raised their end-of-season expectations to 1.9 Tcf to 1.95 Tcf, AEGIS’ expectations are closer to 1.95 Tcf to 2.0 Tcf
  • Net imports from Canada have been steady around 5.5 Bcf to 6.0 Bcf this week according to PointLogic
    • AEGIS notes that a creep in growth from Canada could be a potential risk for domestic natural gas prices as capital investments slowly return to Canada’s beleaguered upstream industry
    • Canadian gas growth could potentially impact Northwest ROX basis along the Northern Border Pipeline as supply increases
  • JKM prices, the Asian LNG benchmark, have fallen below $4.00/MMBtu to $3.87/MMBtu, this is the lowest prices have been since 2009
    • Corona virus concerns run the potential risk of China delaying February cargoes, further cutting into global LNG demand growth
    • As demand slows, and global prices sink, we are starting to see LNG projects in the U.S. either table proposed facilities for the foreseeable future or ask for hefty extensions to complete construction

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