Stay Informed with Tom Seng's Oil & Gas Commentary

Guardian Mineral Management presents the ‘Weekly Oil & Gas Commentary’ series, offering timely updates and expert analysis on the ever-evolving oil and gas markets. Led by industry veteran Tom Seng, this series provides valuable insights that help mineral owners make informed decisions. Stay ahead of market trends with our in-depth commentary and understand the implications for your mineral assets.

Oil – Fundamental Analysis

Conflicting statements emanating from both sides of the Iran War this week continue to baffle a market seeking direction. What is becoming more and more apparent, however, is that there has been substantial damage to oil and gas infrastructure in the Persian Gulf region which will lead to a longer-term impact on global prices. Another aspect of the conflict that is not often acknowledged is the ultimate end of the value chain for crude oil, that is, petrochemicals. Last Sunday’s trading jumped higher to over $100/bl. for WTI on Trump’s threats to bomb Iran’s power generation if they did not open the Strait of Hormuz. But, by Monday’s regular trading session, he announced a 5-day waiting period for those attacks and the market fell back only to rally higher later in the week. The week’s Low was $84.40/bl. on Monday with the High of $101.70/bl. also occurring Monday.  Brent crude followed a similar pattern hitting a High of $114.45/bl. on Sunday evening and a Low of $99.95 on Monday. And, while WTI is traded higher than last week, Brent is slightly lower.  The WTI/Brent spread fluctuated throughout the week but now sits at ($3.00). A large gain in commercial stocks had little impact on the week’s rally.

With Trump’s 5-day pause on his threat to attack Iran’s power plants along with statements he made that negotiations were taking place and Iran is seeking peace, crude prices fell Monday. However, Iran denied any such conversations but did issue the conditions under which they would consider halting the hostilities, none of which are acceptable to the US and Israel currently. Iran also rejected the US proposals for ending the war. Trump later extended his pause on strikes for 10-days while continuing to demand that Iran free-up the Strait of Hormuz. Furthermore, thousands of US special forces are being moved into the region in anticipation of an invasion of Kharg Island where 90% of Iran’s oil exports are loaded onto tankers. The continuing attacks by both sides have kept oil at the current higher levels. The “risk premium” has become reality with the continuing interruption of flows through the Strait.

 The IEA has identified about (40) damaged oil and gas infrastructures so for across the spectrum from oil & gas fields to pipelines, refineries and export ports. Shell, specifically, reported that its gas-to-liquid (GTL) facility in Qatar has suffered extensive damage that will take at least a year to repair. And it’s already been reported that Qatar’s LNG export facilities have lost 17% of capacity that could take 3-5 years to fix.

 Both India and China have reached out to Iran requesting passage of tankers bearing crude and refined products. Some of those have been allowed to pass while the IRGC is charging a “toll” of $2.0 million for other, “non-enemy” ships to traverse through. So, while not 100% “open”, we are seeing some oil, refined products and LPG getting moved out of the area. Meanwhile, Iraq has had to cut production as its ability to store crude that can’t be exported is diminishing. It is now estimated that between 7 and 12 million bld. of production has been halted due to a lack of outlets. Saudi Arabia’s East-West pipeline has provided some alleviation but, despite a design capacity of up to 7.0 million bld., it’s currently only  able to ship about 4.0 million bld.

 Countries dependent on energy coming from the conflict area are desperately seeking any/all other sources. India is looking to Russian LNG and has received permission from the US to buy Urals. They are also reported to be buying from Iran. Japan is now allowing a higher level of coal usage for power generation given the higher global LNG prices which so no sign of abating. Meanwhile, South Korea has halted all exports of the important petrochemical feedstock, naphtha. And the Philippine government has declared an energy emergency as it nears only (45) remaining days of refined products supplies.

 Outside of the Persian Gulf region, Ukraine continues to conduct drone attacks on Russian port facilities while the IEA considers another withdrawal from the collective members’ reserves.

 The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased +6.9 million bl. to a total of 456 bl. million and +0.1% above the 5-year average. It was the 5^th-straight week of gains. The API forecasted -2.3 million bl. while market analyst foresaw a drop of -200k bl. US refinery utilization was 92.9% up from 90.8% last week representing +235k bld. to 16.2 million bld. Gasoline demand was +25k bld. to 8.8 million bld. Total motor gasoline stocks decreased -2.6 million bl. to 240 million bl. and are now +3% above the 5-year average. Distillates were +3.0 million bl. at 120 million bl. and are now at  -0.4% below the 5-year average. Inventory at the key Cushing, OK hub changed +3.4 million Bbl. to 30.9 million Bbl. or 41% of capacity. The SPR held at 415 million bbl. Imports of crude oil were -700kk bpd. to 6.5 million Bbld. vs. 7.2 the prior week while exports were 3.3 million bpd. vs. 4.5 the prior week. Exports of petroleum products were 7.6 million bpd. last week vs. 6.7 the prior week. Total US oil production was 13.7 million bld. last week vs. 13.6 last year at this time. Total US active rigs were -9 to 543 vs. 592 last year with -5 oil, -4 in gas.

 AAA’s average US retail gasoline prices continue to rise at the pump due to the war and were most recently reported at $3.98/gal., +$0.07/gal. vs. last week, +$1.00/gal. from last month and +$0.82/gal. more than a year ago.

 The Iran War oil shock continues to weigh heavily on the US and global economies. Business activity slowed to an 11-month low this month with higher energy prices and other inputs as the PMI “flash” index fell to 51.4. Rising prices for gasoline and food has caused a drop in the Consumer Confidence Index from 56.6 last month to 53.3 while analysts are forecasting a rise in inflation to 3.8%. Forecasts for next week’s jobs report expect a gain of +48k and an unemployment rate of 4.5%. All (3) major US stock indexes are lower week-on-week at down to levels not seen since last August. The USD is higher than last week which may be helping keep a ceiling on oil prices. Gold remains below the $5,000/oz. mark.

Looking Ahead

There needs to be some concrete sign of the ceasing of hostilities on both sides or we will continue to see more oil and gas production and infrastructure degradation. Iran is taking a very hardline stance on Hormuz so markets must now assess the likelihood of a US military intervention at the Strait or Kharg Island or both. Traders must now be ever vigilant this weekend and stay on top of any developments this weekend since, thus far, the major events impacting oil markets of late have occurred on the weekend. US inventories of both crude feedstocks and refined products are currently in a good situation. But a prolonged conflict could change that as we are two months from the starting of the summer driving/traveling season. The tanker tracker map below does show fewer ships stranded upstream from Hormuz than last week.

 Natural Gas – Fundamental Analysis

April NYMEX natural gas futures reached Final Settlement Friday after trading lower on mostly mild weather, a small storage withdrawal and despite rising global LNG prices. This week’s High was Monday’s $3.15/MMBtu while the Low was Wednesday’s $2.85.  Natural gas demand this week has been estimated at 102 Bcfd while production was thought to be 109 Bcfd. LNG exports held at 19.0 Bcf. In the UK, natural gas prices at the NBP were most recently at  $18.05/MMBtu while Dutch TTF futures were  $18.95.  Asia’s “JKM” was quoted at $20.40/MMBtu as Asian markets have to compete with Europe. The EIA’s Weekly Natural Gas Storage Report  indicated a withdrawal of -54 Bcf vs. a forecast of -51 Bcf. Total gas in storage is now 1.829 Tcf, now at +5.2% above last year and +0.8% above the 5-year average.

Looking Ahead

Despite higher global prices for LNG, US exporters are maxed-out which minimizes the impact on domestic natural gas prices. With March ending, April is normally a “shoulder” demand month and we could see a storage injection next week.