Blog

Mexico Oil Hedge Update

October 8, 2020

Here is the latest on what traders and analysts are thinking about the Mexican oil hedge efforts. 

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Hurricane Delta and LNG exports in a Battle

October 8, 2020
Markets like to fight the last battle. The last battle for Natural Gas was Hurricane Laura. Laura took out power to Western Louisiana, taking Cameron LNG exports offline for ~5 weeks. Enter Hurricane Delta, an extremely unusual event. In the month of October+, there has been only one hurricane further west in the Gulf of Mexico than Delta that made landfall as a Category 3 dating back to the 1800s. Typically steering ...   read more

Norway Strike, Hurricane Delta, Trump Stimulus Reversal

October 6, 2020
Oil rallied on (1) stimulus hopes (2) Hurricane Delta shut-ins and (3) the loss of 330KBpd of oil from a workers strike in Norway. While Norwegian strikes typically do not last, it tightened up the Brent physical market. Additionally, the one area which has seen (record) shorts has been in Brent, so financial flows were probably supportive as well. 
 
Natural Gas rallied and then fell, as Hurricane Delta's ...   read more

Oil and Gas move higher

October 5, 2020
Oil and Gas prices are moving substantially higher on Monday morning. Oil prices (up over $2) are getting a lift from a few sources. While early reports cited President Trump's improving health after being infected with Covid, that was probably not the main driver, as the market knew that on Sunday 6PM ET when prices opened unchanged. What is more likely helping the market is (1) A Gulf of Mexico hurricane ("Delta") ...   read more

Oil Falls $2/Bbl

October 1, 2020
Signs that Iraq did not adhere to its quota better in September are weakening the oil market. Additionally, Saudi Arabia increased shipments by 500KBpd in September and Covid continues to delay a return of demand. Europe's casedemic is causing local governments to enact distancing and other mandates. These steps will not help the region increase economic activity in the near term, casting further doubt on the ...   read more

Crude Oil finishes week up nearly $3/Bbl; Gas stabilizes

September 18, 2020

Crude Oil prices consolidated gains after OPEC said it would take action should prices weaken.

 

Natural Gas was a tale of two markets, as spot October 2020 fell precipitously Thursday while Cal 2021 fell slightly and regained its losses on Friday. Loss of LNG exports at Cameron were responsible for the drop in front month prices.  

   read more

Crude Oil advances $1.88/Bbl

September 16, 2020

Oil advanced $1.88/Bbl today in spot. 3 main factors supported the move higher: (1) The API and DOE showed inventory draws (2) Hurricane Sally has shut in 500KBpd and (3) the United Arab Emirates is promising to continue its October production cutbacks into November in order to achieve compliance with its quota. 

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IEA Report for September 2020

September 15, 2020
The IEA released their report for September 2020. The headline is that 4Q2020 demand for Crude was lowered by 600KBpd. Our summary of the meaningful bullets: 
A resurgence of Covid-19 cases in many countries, local lockdown measures, continued teleworking and the weak aviation sector led to downward revisions of our demand estimates for 3Q20 and 4Q20 by 0.1 mb/d and 0.6 mb/d, respectively. 
China continues ...   read more

OIL: Inventory Data, Refinery Turnarounds Being Watched

September 10, 2020
API's showed a +3MM Crude Oil build, +2.6MM Cushing build, and a net -4.6MM drop in Product stocks. DOE stocks were fairly in line with the APIs, seeing a +2MM Crude build, +1.9MM Cushing build, and a -4.7MM drop in Product stocks.
 
Turnarounds are concerning to traders. Between Covid and a seasonal decline in demand due to refinery turnarounds after the end of summer driving season, record stockpiles could ...   read more

Oil and Gas Follow Main World Markets Lower

September 8, 2020
Risk Off was the word on the Tuesday following Labor Day. An increase in Covid cases in Europe sparked selling of equities, which softened Oil. In the last 4 sessions, the S&P has lost -7%. This global macro weakness has exacerbated demand loss concerns, contributing to a -14% selloff in oil over the same period. Saudi Arabia lowered its OSP by -$1.40/bbl, which did not help the market. While Libya is not back on ...   read more

Crude Oil Changes Trend to Down

September 4, 2020

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Follow-through selling in Crude Oil- WATCH THE TREND PIVOT

September 3, 2020
There was no real substantive news overnight in Oil after yesterday's news that Iraq was looking for relief from cuts in 1Q2021. Iraq tried to do damage control, pointing to its efforts to make up for cuts it was behind on and its pledge to 4Q2020 cuts. Right now, traders and analysts are rounding up the "usual suspects" for why oil is lower- a bounce in the US Dollar and questions about the return of demand/Covid. Because ...   read more

Iraq sends Oil prices down

September 2, 2020
Reuters reports that Iraq will seek an exemption from production cuts beginning in 2021. This was followed up by the Iraqi Oil ministry denying that they are seeking an exemption and that they are fully committed to the cuts agreed to for the balance of 2020. The denial did not do a strong job in specifically addressing 2021, and the market remains at the lows of the session, down ~$1.40/Bbl in ...   read more

Hurricane Laura

August 26, 2020
The path of Hurricane Laura is bearing down on the TX/LA border. Typically, the upper right quadrant of the storm gets the most rain and wind. Because Hurricanes (in the Northern Hemisphere) rotate counterclockwise, it is the right side that also can see the storm surge. Here is the latest update from the NHC on the track.
 
The impact from the storm on energy infrastructure and markets is not entirely clear. ...   read more

Crude Oil Softer on European Covid Concerns

August 21, 2020

Crude Oil is 45 cents lower this morning on concerns that new outbreaks of Covid in Europe will slow demand. Additionally, more progress is being made by Libya to possibly return to the oil market, as a ceasefire may lead to a deal on revenue sharing amongst internal parties. 

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Crude Oil goes on a morning bungee jump before recovering

August 20, 2020
After a rapid fall, the oil market has recovered most of early morning losses. WTI is about 30 cents lower in the second contract, climbing back from lows which were -1.45 on the day.
 
Traders are still trying to explain the price action for the sudden drop and rebound. One explanation cited higher jobless claims. The problem with that explanation is that the market did not drop until 30 minutes after ...   read more

Gas Finishing the Week Strong

August 14, 2020
Natural Gas is wrapping up the week on a strong note. Yesterday the EIA reported an injection of +58 BCF, 2 BCF more than analysts had been expecting. Despite that small miss, the market was firm. Today, prices vaulted to new highs on the move with no real fundamental change/news. Cash prices are strong. Typically when there is no news for a (notable) market move, it means the move is real. The backdrop is the same. ...   read more

Oil Update after DOE Release

August 12, 2020
DOE's were supportive. The big 3 (Crude, Distillate, Gasoline) showed an inventory drop of -7.5MM vs an expectation of -2.5MM bbls. Exports were up. More importantly, Oil production fell 300KBpd to 10.7MMBpd. With the exception of one weekly report on June 12th, this is the lowest production level since Covid-19 began. It augers support for the market given higher prices have not apparently brought back production ...   read more

Spot Oil moves higher to $43

August 5, 2020
A wide range of minor factors are working together to produce a Crude oil rally.
The API showed a healthy inventory draw, confirmed this morning with the DOE showing a -7.4MM Bbl drop
Building US Debt is lowering the US Dollar, so a broad-based commodity rally is ensuing.Since May 25th, the USD has lost 7% of its value.
US E&P earnings reports are also indicating that they expect flat production going into 2021, ...   read more

Natural Gas up 17 cents

August 3, 2020
After a week of relatively quiet markets in both Gas and Oil, Natural Gas is up significantly to start the first week of August. Spot is up 17 cents, but Winter proxy January 2021 is up only 7 cents. Warmer forecasts are driving up the front of the curve, but more importantly, the threat of Congestion in the Marcellus will wane if there is enough demand here to finish Summer. RBN Energy just came out with a blog post ...   read more

LNG Cancellations for September are reduced from Summer's higher levels

July 21, 2020
LNG cancellations for September 2020 are expected to come in at ~25 cargoes. This is less than the 40-45 cargoes cancelled in July and August. The uptick for September equates to an additional 2.4 Bcf/d in demand. With LNG sendout at roughly 3.3 Bcf/d last week and averaging roughly 3.7 Bcf/d this week, that would imply September improving closer to 6 Bcf/d. This will help control gas injections in the ...   read more

EU Stimulus lifts Oil

July 21, 2020
The European Union adopted an $857B fiscal stimulus package. The devil is in the details, as in-fighting amongst member nations was chronicled. Additionally, the EU Parliament must ratify the deal. 
 
For Oil producers and consumers, the deal means higher oil prices for two reasons. Additional stimulus will help the near and intermediate term outlook for demand by getting the European bloc back on its ...   read more

OPEC+ Meeting Wednesday

July 14, 2020
Ahead of a July meeting tomorrow, Iraq, Nigeria and Kazakhstan are being asked to make up for shortfalls in their production cuts from previous months. Those additional cuts will be made in August to supplement a planned cut of 7.7MMBpd, which drops from current 9.6MMBpd.
 
Oil prices are in a sideways range ahead of the meeting. Given the near proximity of pricing toward the highs of the last 4 months, there is ...   read more

Gas higher, API's mixed

July 7, 2020
Warmer weather is helping gas, which has now put together 3 consecutive up days. While LNG is down to 3 bcf/d in exports (over 6 bcf/d below peak output earlier this year), arb values have strengthened to Europe for later this year, signaling an expected return of increased shipments in September+. A weekly close over $1.78/MMBtu will change the Trend to UP (last $1.88/MMBtu).  
 
The APIs were mixed and ...   read more

Shortened Holiday Week Offers Less Market Drivers

July 1, 2020
Crude Oil is quieter in a holiday-shortened week. 
 
DOE report was supportive, enabling Oil to hold onto gains from the API stats, which also saw a big oil draw.
 
Crude -7.2 (0.3 expected)
Gasoline +1.2 (1-.3 expected)
Distillate -0.6 (unch expected)
Cushing -0.3
Production 11.0/d unch
 
As a reminder of the risk during this period of covid/fluctuating supply and demand, Saudi Arabia has warned ...   read more

Natural Gas: A Tale of 2 Tenors

June 25, 2020
Natural Gas is facing potential storage congestion at the end of injection season. A report from the EIA this morning did nothing to help alleviate those concerns, as storage built +120 BCF, 11 BCF more than analyst consensus expectations. Increasingly the summer portion of the 2020 strip (through October) is weakening while the Winter strip and Cal 2021 hold better values. Reuters sees 40-45 cargoes cancelling ...   read more

DOE Report + Macro Risk Off sends Oil lower

June 24, 2020
Crude Oil fell $2.36 to $38.01. The market was pressured by an increase in US production back to 11MMBpd from 10.5MMBpd last week, and weaker equities. The equity markets have reacted to increasing Covid cases in Germany and certain pockets within the US. Inventories were neutral, with all +/- 0.5MMBbl of expectations. Equity prices fell -2.5%. 
 
Crude Oil prices held the Control Pivot of $37.43 with ...   read more

DOE Report helps oil recover some of earlier losses

June 17, 2020
Crude Oil recovered a portion of early losses after a more supportive DOE report. Products went positive on the day.
 
DOE                Actual           Expected
Crude Oil          1.2                   1.6
Gasoline          -1.7  ...   read more

Crude Oil price moves

June 16, 2020

Oil prices recovered Monday and Tuesday on macro news via:

 

Federal Reserve buying of corporate debt

 

Dexamethasone as Covid treatment

 

Rebounding retail sales

 

Talks of $1T in additional stimulus- roads 5G Broadband

 

Tuesday intraday volatility/weakness:

 

China restrictions on schools / travel in and out of Beijing 

   read more

Crude Oil Price Alert

March 23, 2017
R^2 producer clients received recommendations to hedge oil at $54 - $57/Bbl during the four weeks preceding the timely ALERT below.
 
Sent: Wednesday, March 08, 2017 8:25 AM
Subject: Crude Oil Price Alert
Importance: High
Dear Client,

 
If the close on Friday is below $52.54, our trend indicator will turn to down.
Weakness in oil this  morning has crude prices ...   read more

Platts 4th Annual North American Crude Oil Summit

February 20, 2015

Come join R^2 at the North American Crude Oil Summit.

 

Location: JW Marriott Houston Downtown Hotel

Date: February 26, 2015

http://events.platts.com/north-american-crude-oil-summit?mvr=eventlisting

 

Wayne Penello will be moderating the panel on World Oil Markets at 9:15 am and we will also have representatives at the booth to answer any questions you may have.

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Where is the Floor in Crude Oil?

January 22, 2015
In recent weeks R^2 has been asked “How low can oil prices go?” This is the wrong question. John Maynard Keynes said “Markets can remain irrational longer than you and I can remain solvent.” His point was that it is foolish to believe that anyone can consistently identify market tops or bottoms. They are impossible to pick. The more important question focuses on the sharply contrasting risks one ...   read more

Q&A with R^2 - Successful Hedge Programs

January 13, 2015
Q: Why should an oil and gas firm hedge its production?
A: Most firms that hedge do so to ensure their future cash flows. With a well-designed hedge program, a company can be confident that it will achieve budgetary success regardless of swings in commodity prices.
Q: What is the hallmark of a successful hedge program?
A: Successful hedge programs are powered by robust analytics. All ...   read more

NAPE SUMMER 2014

August 22, 2014
R^2 hosted a breakfast during Summer Nape in Houston on August 21, 2014. Thank you all for those who attended. It was a great success. Two of our analysts presented on current dynamics in the crude oil and natural gas markets.
 
Outlook for Natural Gas - The New Normal by George Romagus
Growing natural gas production in the US, coupled with inadequate take-away capacity has led to depressed pricing in Marcellus ...   read more

Macro Hedge Decisions for Producers

July 16, 2014
Question from client:
We want to remove some of the risk from our portfolio. Is this a good time to add hedges for Crude Oil, Natural Gas, and Natural Gas Liquids?
 
R^2 Response:
1) Crude Oil
The Iraqi geopolitical situation is a wild card. But risk premium due to potential loss of production is getting built into the price.
Larger scale risks are being ignored. The US Dollar is poised to go much ...   read more

LDC Gas Forum - Northeast

May 29, 2014
Come join R^2 at the Northeast LDC Gas Forum on June 16-18, 2014 in Boston, MA.
 
Monday Jun 16, 2014 1:00 pm - 5:00 pm
Seminar: Hedging for Budgetary Success
Register Now
 
SEMINAR DESCRIPTION:
This class provides tools that can be used to solve the most common dilemma facing managers of hedge programs; hedge portfolios are designed to insulate a firm’s cash flows from commodity ...   read more

In Flux: Crude Differentials - Oil & Gas Investor

May 5, 2014
"While the U.S. tight oil revolution has introduced a new set of locational pricing dynamics for crude, producers should be more concerned about the potential for absolute price changes.
 
Prior to 2011, West Texas Intermediate, Brent and Louisiana Light Sweet crudes traded closely together. Producers would generally get the same price whether they delivered crude to Cushing, the Gulf or the East and West coasts.
 
As ...   read more

LDC Gas Forum - Southeast

March 28, 2014
Come join R^2 at the Southeast LDC Gas Forum on April 14-15, 2014 in Atlanta, GA.
 
Monday Apr 14, 2014 1:00 pm - 5:00 pm
Seminar: Hedging for Budgetary Success
Register Now
 
Tuesday Apr 15, 2014 10:15 am - 11:45 am
Speaker Panel - Effects of the Polar Vortex
Presentation - Polar Vortex Heats Up Basis Risk
 
SEMINAR DESCRIPTION:
This class provides tools ...   read more

Crude Oil Alert: This Time May be Different

March 26, 2014
Is your P98 (low case revenue) adequate for 2015? At R^2, we quantify risk as the difference between P50 (base case revenue) and P98 (low case revenue). Our patented process updates these risk estimates each month (“RRHR”) by refreshing objective observations of price and volatility used as inputs for modeling price risk. Our model, like all models, is only as good as the data and assumptions it uses.
Here ...   read more

Nymex WTI Speculation Hits An All-Time Record

February 14, 2014
The most recent update by the CFTC, released Friday, February 14, 2014 showed net speculative length by non-commercials was at a new record of +423,000 contracts. The accumulation of long positions has been supportive of oil prices, but in excess it is destabilizing. Speculators can only cash out by liquidating, which will put downward pressure on prices.
 
Below is a chart of net speculative length (left axis, ...   read more

Update - Should Producers Hedge Natural Gas Now?

January 22, 2014
YES! Earlier this month gas dipped below $4.00 momentarily because Commodity Index Funds were readjusting their portfolios. With that selling out of the way, traders refocused on the weather and were able to rally prices above $4.50. Bal 14 swaps at $4.36 are attractive, given that 2013 averaged $3.65 and the previous 5-years averaged $3.77. Cal 15 is trading at $4.17. We recommend hedging Cal 15 with collars, for example ...   read more

Should Producers Hedge Natural Gas Now?

November 7, 2013
R^2,
 
Given the recent downward pressure on gas in 14, what could we do to protect cash flow but not limit future upside?
 
Sincerely,
Upstream Producer
 
Comments:
 
This is not a place we want to hedge if you don’t have to. The market has been in a tailspin for 2 weeks. The Cal 14 swap is at new lows and near its minus 2 STDEV bar. We would expect that any threat of cold weather should ...   read more

Crude Oil Hedging for Producer

September 10, 2013
R^2,
 
Please provide your insight along with some historical charts for Cal ’14 oil. We are considering a 200 bopd LLS swap. Please provide a midmarket indication as well.
 
Sincerely,
Upstream Producer
 
Comments/Color:
R^2 has been advocating crude oil hedging for producer essentially all summer. The reasons behind this are:
Speculative length of long positions is at an ~all-time record
Pricing ...   read more

Crude and Natural Gas Price Fluctuations in Response to Geopolitics and Supply

September 9, 2013
Crude is down $0.60 with sellers in control.
Natural gas is up $0.06 with buyers in control.
 
 
Crude oil was supported by concerns over Syria and the potential for international conflict.  President Obama is expected to speak to the public on Tuesday and Congress may vote on the resolution authorizing the use of force as early as Wednesday.
 
 
Natural gas put in a poor showing this week.  ...   read more

Hedge Natural Gasoline for balance of 2013

September 5, 2013
R^2,
 
Please provide your fundamental/technical thoughts on pentanes for the rest of the year?
 
Sincerely,
Upstream Producer
 
 
 
Comments/Color:
Quick Summary: Hedge Natural Gasoline for balance of 2013 to take advantage of the geopolitical bump in price.
 
Discussion: Thanks for your interest in an update on hedging NGL’s. NATURAL GASOLINE valuation vs. WTI has improved ...   read more


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