Oil and product prices are compressing in a range as natural gas pops in hopes that low prices may start to cure low prices. Reports that Chesapeake Energy (NYSE:CHK) will start cutting drilling activity next month suggest that most other producers will do the same or just fade away into the sunset of Chapter 11. The short-term on natural gas looks very bearish and because the fundamentals on oil are bullish, it may take some time before they complete the bottom but definitely the sign that we’re getting close when you start to see production cutbacks.
It was reported that Chesapeake produced 3.66 Bcfe/d in 2023, based on an average of 11 rigs to drill 193 wells, with 166 wells placed on production. Output averaged 3.43 Bcfe/d during the fourth quarter; the company used nine rigs to drill 45 wells and place 52 wells in production. This year, Chesapeake plans to drill 95 wells and place between 30 to 40 in production. Output is expected to range between 2.65 Bcf/d and 2.75 Bcf/d. Last week Comstock Resources (NYSE:CRK), Inc. suspended its dividend and is going from seven rigs to five rigs.
A shaky stock market also rattled the cages of the energy markets. A big sell-off in Nvidia (NASDAQ:NVDA) stock is raising concerns that the overall economy might be on shaky ground
Yet from an oil demand standpoint, we hear from JODI that oil demand continues to be at record highs around the globe and what’s more concerning is if you look at global inventories of supply that are well below the five-year average. JODI reported that global crude inventories fell by 8 million barrels in December and were 275 million barrels below the five-year average.
So global oil inventories are a whopping 275,000,000 barrels below the five-year average? Think about that for a moment. Without the record-warm temperatures, we would be in big trouble, not only for diesel but also for the lack of crude supplies.
While supplies tighten, political risk factors are dramatically high. Houthi rebels are threatening the EU after they vowed to step up enforcement and protection of the Red Sea where the Houthi are becoming more belligerent and there are reports now that Iran is supplying Houthi rebels with drone submarines. Of course all of this is not going to matter to the oil market until it matters.
Oh Canada, what are you thinking? Reuters reports that, “Canada has secured the surrender of the last remaining permits for oil and gas development off its Pacific Coast, the federal natural resources minister said on Wednesday, after Chevron Canada (NYSE:CVX.N), opens new tab voluntarily relinquished 23 permits this month. Energy and Natural Resources Minister Jonathan Wilkinson said the relinquishment of the permits marked an important milestone in permanently protecting the ecologically rich waters of Canada’s west coast.”
What is the suggestion that the White House is making the decision based on the sales of ethanol for purely political decisions? I’m shocked! Reuter reports that, “The White House will approve a request from a group of Midwest governors to allow year-round sales of gasoline with higher blends of ethanol, but will push the start date into next year, two sources familiar with discussions said. The decision will likely be bittersweet for the biofuel industry, which wants to expand sales of corn-based ethanol but might be frustrated by the 2025 start date. The one-year delay could put off any potential localized price spike.