Both major oil and gas benchmarks are going out in 2020 without making much noise. In Thursday's settles, ahead of the New Year's Day holiday tomorrow, most of the gas curve is hardly changed. Summer ($2.65) and next Winter ($2.89) strips were up a few cents. Oil? Similar. The Feb (now prompt) contract rose 25c (to $48.54) from its Christmas Eve close, and the entire Cal 2021 rose 12c.
This won't be another bit of commentary to tell you how weird 2020 was. We're here to say that risk in 2021 is going to be much different.Gas prices have the potential to get much better, because of ongoing demand growth and gas production that has limited chances to keep moving up. Weather keeps holding back what we believe is a solid supply-demand balance that may set up the summer and next winter to be undersupplied.
Meanwhile, WTI has had a tremendous run, and it apparently has happened despite good supply-demand underpinnings. We're cautious there, and we strongly recommend adding swaps as hedges to lock in gains achieved in this rally. In fact, prices have been so friendly that many clients should consider getting more aggressive in their 2022 hedges. Many of your peers (AEGIS clients) are doing exactly that.
Last, take a look at the basis markets. There are opportunities in many basis curves. We noted in this post that Waha basis traded to POSITIVE territory for January 2021. The whole curve is not that good, but it has improved. The same can be said of Midcontinent and Southeast locations. Let us know if you need to consider adding hedges for those markets.
Happy New Year from AEGIS. We wish you prosperity, and we hope to aid you in it.
