Natural gas and oil are moving higher on a deadly Arctic Blast that could drive demand to records while supplies get frozen in. According to Fox Weather and the FOX Forecast Center, the arctic air that has descended across the Lower 48 states could drive temperatures to 30-40 degrees below average for this time of year. They warn that this frigid pattern appears locked in for the foreseeable future, with a deep freeze potentially lasting through the end of the month, the FOX Forecast Center said. This wicked cold is already causing havoc for production.
The North Dakota Pipeline Authority said yesterday that oil production was estimated to be down between 120,000 and 150,000 barrels of oil per day, as of Tuesday morning, due to the recent extreme cold and related operations challenges. Associated wellhead natural gas production was also estimated to be down 0.34 to 0.42 billion cubic feet per day, according to Justin Kringstad, the director of the North Dakota Pipeline Authority.
The production issues may be a wrinkle for liquefied natural gas exports which did hit a new record high at the LNG facilities at the Sabine Pass, Cameron, Calcasieu Pass, Elba Island, Cove Point, Plaquemines, Freeport & Corpus Christi combined for Feb 17 was 15.48 Bcf. We will also be getting reports about freeze-offs in Texas and throughout the Permian basin. But hopefully, they’ll be able to keep the lights on.
Bloomberg News reported that, “The Electric Reliability Council of Texas, the state’s grid operator, said electricity demand will soar in the coming days but it expects to be able to meet the spike in consumption. Regulators and lawmakers have moved to bolster the state’s power system after the grid collapsed during a series of winter storms in 2021, killing hundreds of people as homes and businesses were left in the dark. Power demand on the Texas grid is expected to reach 79.5 gigawatts on Feb. 20 between 7 a.m. and 8 a.m., which would be 37% higher than this afternoon’s projected high, according to recent Ercot forecasts. If that outlook holds, it would topple the current winter record."
Oil is also getting support from the fact that OPEC is considering not adding oil back to the market. The International Energy Agency is pointing to the fact that supplies in the US have inexplicably risen in the last couple of weeks and because of that they think that there’s going to be a little bit of supply overhang at about 140,000 barrels a day. Yet in reality, the cold temperatures could wipe out any surplus that they see because the numbers that we’ve seen the last couple of weeks are questionable, to say the least. I wouldn’t put too much comfort in the supply overhang yet at the same time we’re seeing international news start to drive prices as well.
One cannot deny the fact that President Trump and his energy strategy and energy emergency are already putting downward pressure on prices. Hedge funds are pulling back from bullish positions not only because they’re concerned about tariffs and foreign policy but also because they believe that President Trump could open the door to a new era of lower energy prices with reduced regulation and common sense in energy strategies.
Also a reversal from the damage the Green Deal caused significant damage not only to the global economy but to the stability of the globe. It also wasted trillions of dollars. TNND reported that Energy Secretary Chris Wright on Monday slammed efforts to achieve net zero carbon emissions by 2050 as “sinister.” Wright’s remarks came while speaking at the Alliance for Responsible Citizenship (ARC) forum in London. The three-day forum is described on ARC’s website as a gathering of “world-leading thinkers, business leaders, policymakers, and culture formers” to discuss questions pertaining to “social, economic, cultural, and moral” matters.
Wright addressed pushes to reach net zero emissions within the next 25 years. The U.S. Department of Energy defines a net-zero economy as averting or removing “as much greenhouse gas as it produces,” according to its website. The U.K. has emphasized its commitment to reaching such a status by 2050. Joe Biden in 2021 also set a goal for the U.S. government to reach net zero emissions by 2050. “Net zero 2050 is a sinister goal, it’s a terrible goal,” Wright said. “It’s both unachievable by any practical means, but the aggressive pursuit of it — and you’re sitting in a country that has aggressively pursued this goal — has not delivered any benefits, but it’s delivered tremendous costs.”
Weather forecasts can continue to drive this market. We continue to believe that oil is at the lower end of a trading range and it seems to have held that lower end. The upper end of the trading range could be as high as 73 to 75 but more than likely eventually we’re going to test 80. Neutral strategies on options might be very attractive in this type of environment but at the same time, you can look for shorter-term swing trades, which could be a good way to take advantage of this range trading.
Oil Price reported that the Ukrainian drone attack on a pumping station of a pipeline in southern Russia, which carries oil from Kazakhstan’s major oilfields, is a blow at U.S. companies, the oil market, and U.S. President Donald Trump, said Dmitry Medvedev, deputy chairman of the powerful Security Council of Russia. On Monday, the Caspian Pipeline Consortium (CPC), which operates the pipeline from the Caspian coast in northwest Kazakhstan to the Novorossiysk port on Russia’s Black Sea coast and carries most of Kazakh crude exports, said that one of its pumping stations was attacked by drones. After the attack, the Kropotkinskaya pumping station was taken out of service, and crude transportation through the Tengiz-Novorossiysk pipeline system is being maintained at reduced flow rates, bypassing the attacked pumping station, CPC said.
Natural gas is going to be very interesting. We will continue to watch the Fox Forecast Center for any changes. If we continue with these cold forecasts, the rally on natural gas may not be over. If the market is convinced that we can see it warm up after this cold blast fairly quickly then perhaps we can ease some of the concerns. But make no mistake about it this Arctic blast has a lot of natural gas traders questioning their complacency about supply.