American Oil and Gas Reporter - May 2022 - 66

SpecialReport: Markets & Compression
may prove critical at a key inflection point
for natural gas, with the most-likely scenario
suggesting further consolidation, but the
risk of hotter temperatures posing increased
odds for another price breakout higher.
Increasingly Weather-Sensitive
The balance of price risks continues
to point higher for NYMEX futures once
the July contract assumes the frontmonth
role and the storage trajectory
FIGURE 3
U.S. Crude Oil Inventories (MMbbl)
550
525
Five-Year Range
475
500
450
425
400
375
Jan
FIGURE 4
U.S. Total Distillate Inventories (MMbbl)
190
2021
175
Five-Year Range
160
145
130
115
100
Jan
Feb Mar
Apr
May Jun
Jul
66 THE AMERICAN OIL & GAS REPORTER
Aug Sep
Oct
Nov Dec
5-Yr Avg.
2022
Feb Mar
comes into clearer focus. Although
deficits may recede during May, the
market will become increasingly weather-sensitive
as summer progresses and
will become at the mercy of Mother
Nature. Natural gas storage inventories
could still be more than 225 Bcf below
the five-year average in early June with
rapidly dwindling time (and capability)
to make up deficits in the refill season.
If a hot summer ensues, recent activity
2021
Apr
May Jun
5-Yr Avg.
Jul
Aug Sep
2022
Oct
Nov Dec
from a comparatively minor and brief
early May heat wave in Texas may provide
indications of likely market reaction.
The possibility exists for double-digit
NYMEX pricing by late summer.
On May 4, the July contract closed
near $8.50/MMBtu, higher not only than
the June front-month contract, but also
above both the November 2022 and February
2023 contracts. The inverted curve
may present an interesting set of market
incentives for marketers. Salt storage
operators are likely to withdraw supplies
to capture higher prices in mid-summer
as they do each year, but the relatively
small summer/winter spreads may not
incentivize sufficient market-driven injections
by late summer.
We continue to emphasize that natural
gas fundamentals are relatively inelastic
with respect to price-at least in the short
term-and significant price swings are
possible from comparatively minor fundamental
stimuli. Tremendous price
volatility is likely to result from minor
fundamentals shifts. Price risks remain
high in both directions. If production
swells higher faster than expected, for
example, the projected storage trajectory
may rise and winter storage adequacy
fears will abate, enabling prices to return
back to the $4-5/MMBtu range. More
likely, however, is that tremendous upside
price risks for winter 2022-23 begin to
be more fully priced in to the NYMEX
forward curve, carrying near-term contracts
higher.
Key Appalachian natural gas producers
have reaffirmed prior commitments to
capital discipline and maintenance production
in recent earnings calls, leaving
projected production trends falling short
of the supply growth needed to balance
the market ahead of next winter. In addition,
the embattled 2.0 Bcf/d Mountain
Valley Pipeline has postponed its inservice
date to the second half of 2023-
slashing bearish hopes for an early startup
that can help alleviate supply woes.
ExxonMobil, Chevron and several

American Oil and Gas Reporter - May 2022

Table of Contents for the Digital Edition of American Oil and Gas Reporter - May 2022

Contents
American Oil and Gas Reporter - May 2022 - Intro
American Oil and Gas Reporter - May 2022 - Cover1
American Oil and Gas Reporter - May 2022 - Cover2
American Oil and Gas Reporter - May 2022 - Contents
American Oil and Gas Reporter - May 2022 - 4
American Oil and Gas Reporter - May 2022 - 5
American Oil and Gas Reporter - May 2022 - 6
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American Oil and Gas Reporter - May 2022 - Cover3
American Oil and Gas Reporter - May 2022 - Cover4
https://www.nxtbook.com/nxtbooks/aogr/202403
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