Week Ending June 25

Oil prices continued to please market bulls this week, with WTI finishing Friday at $74.05/Bbl. The nearly $3/Bbl rise in price for the week reflects a tight oil market and OPEC's cautious approach to returning supply to the market.

Early in the week, comments from OPEC+ hinted at a 500 MBbl/d increase in supply for August. Oil markets took this news as bullish, with the 500 MBbl/d addition viewed as conservative given what appears to be a tight supply-demand backdrop. The group will next meet on July 1.

The market is largely ignoring the threat of Iran's supply returning soon. Oil prices have continued to climb, even though U.S. negotiators said they are prepared to continue with a seventh round of indirect talks with Iran. Iran has the ability to increase oil exports between 1.5 – 2.0 MMBbl/d over time if U.S. sanctions are lifted. The OPEC nation also has about 70 MMBbl of floating storage available for dispatch, according to Gibson Shipbrokers. However, U.S. officials also said there are "serious differences" that need to be addressed before a new nuclear deal is struck and sanctions are removed.

AEGIS hedging recommendations are swaps for the balance of 2021. We believe 2022 has a greater chance of realizing above the current strip; therefore, collars can be a better choice as they allow for more upside participation. For Cal 2023, we suggest utilizing collars for most clients. A majority of producers do not have material volumes hedged in Cal 2023. It may be a good time to start layering in small percentages or "base" layers of protection, given the strong price action. 

To see details on factors we believe are affecting oil prices and trade recommendations, click the "Read More" button on the Factor Matrix section in the AEGIS Research Module.

Natural gas rose 25c to $3.49/MMBtu for the prompt month this week. The July-October 2021 strip (remaining summer months) finished the week at $3.50, up 25c on the week. The price strength carried through most of the curve as Winter 2021-2022 finished 21c higher at $3.59, and Summer 2022 settled at $2.93, up 10c.

On a weather-adjusted basis, the gas market continues to be tight by our estimates. Many analysts missed this week's EIA gas storage report result by 10 Bcf. Estimates were calling for about a 65 Bcf storage injection for the week ended June 18, but the EIA reported a 55-Bcf build. Our models say the 55-Bcf build, combined with an average Lower 48 temperature 76.8°F, measured 1-1.2 Bcf/d tight versus the long-term average.

Hot weather has also supported gas prices. So far, this month has ranked as the hottest June in terms of cooling degree days (CDD) in at least the last 11 years. June 1 to June 23 has totaled 258 CDDs, about 33 CDDs higher than the past 10-year average for the same period, according to Bloomberg data. One CDD can equate to around 1 Bcf of gas demand in summer.

AEGIS hedging recommendations continue to be swaps for the balance of the Summer 2021 strip. For Winter 2021-2022, we still suggest using collars due to the value the options market provides in the call options. Summer 2022 recommendations remain mixed. Based on our view that prices still have some room to move higher in Summer 2022, we suggest using collars. However, with the strip now at about $2.93 as of Friday, some producers may find swaps more attractive.

To see details on factors we believe are affecting gas prices and trade recommendations, click the "Read More" button on the Factor Matrix section in the AEGIS Research Module.