May 4, 2020

May 4, 2020
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  • WTI is down 10c to $19.68/Bbl, and Brent is down 2c to $26.42/Bbl
  • Oil fell Monday morning following a three-day rally
    • Markets are under pressure due to heightened tensions between the U.S. and China over the origin of the virus
    • Secretary of State Mike Pompeo said on Sunday there was “a significant amount of evidence” that the new coronavirus emerged from a Chinese laboratory, adding to President Trump’s threat last week to impose tariffs on China (Reuters)
  • Funds that track oil are continuing to shift away from near-term crude contracts (Bloomberg)
    • S&P Global Inc. said it will roll WTI futures for July into August, while the United States Oil Fund LP said it will halve holdings in the July contract
    • The funds are shell-shocked following the April 20 plunge into negative price territory of the May contact. Such extreme price action and steep contango, have funds moving their holdings further out of the curve to avoid volatility
  • The physical oil market is showing very tentative signs that we might have passed the worst of the historic rout (Bloomberg)
    • Headline Brent futures contracts rallied by about a quarter this week as investors and traders bet on a fragile demand recovery
    • A lot of the world’s physical oil trades at premiums or discounts to Dated Brent, published by S&P Global Platts
      • The measure rallied to $19.67/Bbl on Thursday, up from a two-decade low of $13.24 a little over a week earlier
      • So-called “contracts for the difference”, reflecting how the physical Brent market is faring relative to futures, have rallied more than $5 from their lows in April (Bloomberg)
    • AEGIS notes that it may be too early to call an inflection point, but global indicators are becoming less bad and some indicators of demand are improving
  • Natural gas is up 8.9c to $1.979/MMBtu
  • As earnings season continues, several large natural gas producers have provided updates on their drilling plans
    • Cabot will maintain a modest maintenance drilling program for this year and next, despite a projected natural gas price increase
    • Range Resources is following a similar path, they are choosing to not immediately increase production in 4Q2020 and next year
    • Range Resources and Southwestern are shifting their well mix to focus on dry gas wells, as opposed to wet gas wells, given the collapse in oil prices
  • Rockies Natural Gas Basis Rises Amid Lower Oil Prices (link)
    • Hedging CIG winters is looking attractive at the moment; given its tightness to more premium markets
    • Summer strips are much improved, but also have a higher likelihood for further upward mobility given their deeper discount to Midcontinent and Midwest markets
    • Natural Gas production in the Rockies has started to drop over the past few weeks as oil prices have been weak and oil storage has become an issue
  • The CFTC reported managed money net positioning has moved to its highest level in 12 months, totaling 15,117 contracts
    • Long positions grew by 16,810 contracts to total 193,367
    • Short positions also grew by 1,920 contracts to total 178,250

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