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The ZLT was down 5.4% on the week last week as oil and natural gas prices continued to slump, the former largely on economic concerns continuing a recent pattern of detachment from U.S. fundamentals and concern over Asian demand, and the latter on ongoing elevated storage levels with a nod to near term LNG maintenance, a slight further increase in production, and shoulder season weather. Friday saw a decent rebound in oil and our primary names as payrolls data exceeded expectations. Note the market appears to be transitioning beyond "we need bad news to make the Fed halt hikes" to "the Fed is essentially done and we need data showing the economy is not moving into recession".
A few comments on The Wrap table and related items:
Oil
- Last week's EIA weekly was benign. Note that oil and distillate inventories continued to ebb against their 5 year averages.
- Product inventories remain price supportive yielding cracks that support our throughput thoughts for 2023 vs recent years (after a slow start due to bad winter weather we see throughput slightly exceeding 2022's average).
- Speculative long vs short levels continue to swing fairly widely after a sharp dip earlier this spring. Look for them to resolve in a more comfortable > 5x territory this summer.
- The Big 3 (oil with SPR, gasoline, and distillates) will soon head into near, medium, and long term low territory.
- We get the OPEC MOMR this week - all eyes should be on the China demand forecast for 2Q-4Q23.
Natural Gas
- Last week's 54 Bcf build was in line with our 55 Bcf estimate. We are +75 Bcf for this coming week vs an early Street read at +67 Bcf. This is largely shoulder noise. We have conservative views on production, exports and demand in May all to account for harder to predict impacts on demand.
- We continue to see a near 3.8 Tcf storage level at the end of October and see this level as not overly bearish. Prices are overdone to the downside.
- We expect to see incremental LNG exports later in the summer and towards year end (past peak). This will be small and more for positive sentiment than impactful to EOS.
- We expect to see record gas fired generation demand this year.
- We see production inching higher near term before flattening.
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Comments under The Wrap will be addressed in the Monday post.
Questions about the site may be sent to zman@zmansenergybrain.com
Have a good weekend,
Z
