Daily Market Update January 11, 2021

Early Morning Update

The Feb21 natural gas contract is trading down $0.06 at $2.64. The Feb21 crude oil contract is down $0.44 at $51.80.

Summary

On Friday, the NYMEX natural gas prompt month contract lost $0.029/MMBtu, settling at $2.700/MMBtu. The prompt month Brent crude contract, the global benchmark, closed at $55.99/bbl on Friday, which has gained over $4/bbl since OPEC+ meetings last week. During said meetings, Saudi Arabia unilaterally decided to cut oil production by an extra 1 million barrels per day. The decision will hold Saudi production to 8.125 million bbl/day, well below their allotted quota of 9.119 million bbl/day. The higher crude prices is a welcomed sign for producers in the Permian region of west Texas, but what affect will it have on NYMEX natural gas production and prices? If producers respond to higher crude prices by increasing drilling activity and crude output, it will push natural gas supplies higher, as well. However, if producers maintain capital discipline and rein in supplies, we could potentially see higher prices for both crude and oil, particularly if COVID vaccine news spurs increased demand. One thing to keep in mind is that Kinder Morgan’s Permian Highway Pipeline (PHP) entered service on January 1st. This 430-mile, 2.1 Bcf/day pipeline will transport natural gas from the Permian basin to premium demand markets along the Gulf Coast.

Market Settles 010821