News Oil & Gas

Update: Crude Oil And Natural Gas Markets


imaginima

By Rick A. Veitch


Near-term hydrocarbon markets remain tight, stemming from Russia/Ukraine, but long-term oil prices are being driven lower by additional emerging factors.

Global hydrocarbon markets continue to take their cues from headlines out of the Russia/Ukraine conflict and related European gas shortage, but additional factors are increasingly shaping near-term and long-term crude oil and natural gas price expectations.

Recessionary fears in the U.S. and Europe, continued COVID disruptions impacting Chinese demand, and Russian barrels reaching the market have introduced bearish concerns into oil markets.

However, while prompt oil prices have declined below $100 over the past couple of months, we continue to see forward supply deficits in global markets, with additional demand destruction likely still needed.

Adjusting for the year-to-date appreciation of the U.S. dollar, forward refined product prices remain elevated in local markets and reflect prices at which we would expect demand destruction to occur.

Long-term oil prices have seen a meaningful decline over the past month. Forward markets now reflect $55-60 WTI, which is in the context of levels prior to the Russia/Ukraine conflict.

We attribute the downward move in long-term expectations to the strengthening U.S. dollar, which should create incremental broad-based headwinds to global demand, as well as the expected acceleration in the cost competitiveness of electric vehicles due to recent and future legislation.

Global natural gas markets remain rightly focused on the European gas shortage. Waterborne liquefied natural gas (LNG) remains the most expensive hydrocarbon on an energy-content basis. U.S. natural gas remains the lowest-cost hydrocarbon, which has driven significant international price arbitrage.

While U.S. upstream gas producers are unable to capture this difference today, it continues to drive a record pace of LNG export contract signings, which is likely to support future U.S. natural gas demand. Long-term U.S. gas price expectations have increased over the past several months, and are now in the $5-6 range (compared to $3-4 prior to the conflict).

Over the near term, elevated domestic U.S. natural gas prices remain driven by inventory levels. As measured by days of demand coverage, inventories remain well below historical levels.

Demand destruction pricing continues to be needed to improve inventory balances ahead of the winter heating season and into 2023. Domestic natural gas producers have either been logistically unable to respond to current prompt gas prices or unwilling to allocate capital.

With respect to U.S. energy issuers, we expect continued balance sheet improvement and stability from near-term oil and gas prices, with capital structures better positioned for future commodity downturns than in prior periods.


This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor’s individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. The firm, its employees and advisory accounts may hold positions of any companies discussed. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.

Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.

© 2009-2022 Neuberger Berman Group LLC. All rights reserved.


Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.



Source link