November 5, 2019

November 5, 2019
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  • WTI is up 41c to $56.95/Bbl, and Brent is up 49c to $62.62/Bbl
  • Chesapeake is cutting spending in 2020 by 30% as shale activity slows (Bloomberg)
    • The large independent forecast flat oil production next year, using 10-13 rigs with capex between $1.3 billion to 1.6 billion
    • CEO Doug Lawler has tried to shift the company away from natural gas and into one that primarily produces oil (Bloomberg)
      • However, annual production was still about 80% gas at the end of 2018
  • OPEC cut estimates for the amount of oil it will need to produce in the coming years (OPEC annual report)
    • The group projects that its share of world markets will decrease until the middle of the next decade amid a steady rise in US shale supplies (Bloomberg)
    • OPEC expects demand for its oil will drop by about 7% over the next four years
    • AEGIS notes that based on this forecast, OPEC would need to continue to cut output over the next few years in addition to what their current policy already dictates to avoid a supply surplus
  • IMO regulations starting in 2020 will have a smaller impact than previously expected, according to OPEC’s latest World Oil Outlook
    • The global refining complex will have enough flexibility to address changes in the maritime sector’s fuel mix to comply with the IMO’s new rules, the report said
    • The report acknowledges that IMO regulations limiting sulfur emissions starting in January will be disruptive, but evolving market conditions have led to slight adjustments to OPEC’s previous IMO-related projections
  • Natural gas is up 5.8c to $2.879/MMBtu
  • The latest gas-weighted heating degree day (HDD) gain puts the total November estimate at 645 HDDs, the eighth coldest November on record (Commodity Weather Group)
    • The latest round of HDD gains was good enough for the prompt month contract to test $2.90/MMBtu
    • AEGIS recommends producers should look for opportunities to take risk off during this rally as the Spring outlook remains muddled
      • Tune in to tomorrow’s webcast for AEGIS’ updated gas market view
  • Propane is seeing an increase in demand as a wet spring delayed crop planting, and fall floods delayed harvesting
    • Propane drying is worth around 5 MMBbls of demand in a good year
    • Bids on Conway should increase and widen the Conway-Belvieu spread
    • Propane deliveries don’t work like gas. There’s primary, secondary, and tertiary storage. Tertiary storage gets drawn first, and it takes a while for the propane (via truck, mostly) to be taken out of primary and delivered through the chain into tertiary again
      • This provides a set up for more bullish risk and any early cold can have an outsized effect on the fundamentals when corn drying is in effect

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