March 19, 2020

March 19, 2020
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  • WTI is up $1.59 to $21.96/Bbl, and Brent is up 72c to $25.60/Bbl
  • Oil traders are calling for prices to fall a bit further, even after a 60% drop so far this year (Bloomberg)
    • Analysts and traders try to guess crude’s bottom (Brent):
      • Survey of traders  $20/Bbl
      • Goldman Sachs     $20
      • Citigroup                $17
      • Energy Aspects     $10
    • “WTI will fall below cash cost of U.S. shale production, which is around $20,” according to Zhang Chenfeng, an oil-trading analyst at Chinese hedge fund Shanghai Youlin
  • The sudden collapse in demand, and Middle East producers flooding the market, has resulted in a glut of unsold crude oil (Reuters)
    • Nigeria, which produces high quality crude that typically commands a premium, has 30 or more unsold April-loading cargoes, equal to 30 MMBbl, according to traders
    • Demand for exports from the U.S. Gulf Coast has collapsed, traders said
    • The lack of options for storage, as well as high freight cost are deterring buyers
    • Tanks in Cushing, one of the world’s largest storage hubs, are expected to fill to capacity as early as May, traders said (Reuters)
  • Volatility gauges for Brent and WTI skyrocketed to new all-time highs on Wednesday, as outright prices fell to the lowest level in nearly 20 years (Bloomberg)
    • The CBOE/Nymex oil volatility index hit 166.17 points. The index’s typical level is about 30 points. The previous high of 80 was seen in early 2016
    • WTI Put skew is the most bearish on record at -38.6 points
    • This means a 25 Delta Put is extremely more expensive than the offsetting 25 Delta Call
  • Natural gas is up 2.6c to $1.630/MMBtu
  • The front of the Waha curve continues to improve as tenors through the start of Spring ’21 have gained roughly $0.30/MMBtu since last Friday
    • The basis improvement could potentially signal lower production out of the Permian, as there is a possibility that producers are buying back Waha hedges they no longer need
    • AEGIS maintains its recommendation to consider layering in basis hedges at these favorable prices
  • Australia LNG halted trading of its shares before an undisclosed announcement on Friday regarding its 1.1 Bcf/d Magnolia LNG terminal
    • The struggling Magnolia LNG project recently received a takeover bid for the project at the end of February
    • While the project has received FERC approval, it, like many second-wave projects in the U.S., does not have any firm offtake agreements signed
  • Analysts expect a -8 Bcf withdrawal for the week ending March 13, this would be less than the -91 Bcf withdrawal from the corresponding week last year
    • Analyst estimates ranged from a low of -5 Bcf to a high of -12 Bcf
    • A withdrawal within expectations would expand the surplus to the five year-average to 282 Bcf with total stocks at 2.035 Tcf

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