Market Watchers Eye Holiday Weekend Driving Demand

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author)
In this week’s preview of what to watch in oil and gas markets, Rigzone’s regular energy prognosticators take a look at holiday weekend driving demand, fuel price reduction measures, the natural gas market, and more. Read on below to find out the specifics.
Rigzone: What developments/trends will you be on the lookout for this week?
Hillary Stevenson, Director, Industry Relations at oil and gas data firm Validere: Will be on the lookout for how holiday weekend driving demand pans out. Memorial Day weekend is the unofficial kick-off of driving season, with many Americans planning to hit the road for vacation travel. This expected rise in demand comes at the same time gasoline and diesel prices are hitting record highs. Memorial Day weekend is the last weekend before summer grade gasoline specifications go into effect June 1, which require more costly gasoline to avoid smog creation. The White House is considering two measures to reduce fuel prices: releasing diesel volumes from the Northeast Home Heating Oil Reserve and allowing winter grade gasoline to be sold during the summer. Diesel releases would likely have very little and only a very short term impact. The reserve was last tapped during Winter Storm Sandy. Summer gasoline vapor pressure specification alleviations could prevent a $0.03-0.10/gal price increase but would come with more air pollution.
Jon Donnel, Managing Director, B. Riley Advisory Services: Henry Hub natural gas contract topped $9.00 last week as storage levels sit about 15 percent below the five-year average as we head into summer cooling season. Trading included some noise around the expiration of the front-month contract mid-week, but these are the highest prices we’ve seen since 2008. Delivery disruptions and sanctions of Russian gas are causing supply chain issues and forcing other volumes into non-traditional markets. U.S. LNG exports are running close to 10 billion cubic feet per day, about triple the volumes exported in 2018. Given new demand pull resulting from Russia supply disruptions, it will be interesting to see whether there will be any easing of environmental and permitting constraints for new pipelines and announced LNG export terminal projects. Also, higher natural gas prices and uncertainty regarding long-term supply could incent more buyers to sign on for long-term offtake agreements that are instrumental in getting large projects to the FID stage.
It will also be worth monitoring how U.S. supply responds. Activity levels and overall production year-to-date has remained measured as companies have been disciplined in deploying of capital and generally sticking to prior budgets. The gas-directed rig count hit 150 last week, which is up about 40 percent from the end of last year but is still well below the 2019 and 2020 averages (around 170 and around 190, respectively) when natural gas prices averaged about $3.00/mcf. Oilfield service costs are rising (primarily for OCTG, drilling rigs and completion services) and labor constraints are dampening the industry’s ability to quickly ramp activity if so desired. However, the implied returns on new developments at the current strip prices are especially compelling and companies that can solve the supply chain issues stand to benefit.
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: The current rallies in crude and natural gas show no signs of letting up anytime soon. The AAA report this week on miles driven over the Memorial Day Weekend in the U.S. will be very telling as to how the summer may play out.
Barani Krishnan, Senior Commodities Analyst at uk.investing.com: More builds in distillates.
To contact the author, email andreas.exarheas@rigzone.com
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