Volatility returns to oil markets this week; West Texas Intermediate finishes above $110 a barrel

Natural gas prices followed crude’s path on the NYMEX, starting the trading week by plunging $1.01 per Mcf to just above $7 per Mcf. Prices then rose the next three days, including a 36-cent rise Tuesday and 25-cent gain Wednesday. Prices gave back 7.6 cents Friday to end at $7.663 per Mcf, up from $7.026 at Monday’s close but well below the $8.043 at last Friday’s close.

High commodity prices have helped fuel inflation, prompting calls, including from government officials, for producers to ramp up activity and increase output, both to meet rising demand and cool prices. Operators say they are ramping up activity even as they stick to their commitment to capital discipline.

“With commodity prices at levels we have not seen in nearly 10 years, CPX remains focused on finding creative ways to grow our core Delaware Basin footprint through structured farm-in opportunities with operators who are capital or resource constrained,” John Roby, chief executive officer of CPX Energy, told the Reporter-Telegram by email.

“CPX’s technical and operations team has built strong relationships with service companies during the low-price environment that, today, allow us to stay ahead of supply chain challenges and field personnel shortages. CPX currently has one drilling rig active in Loving County and plans to continue efficiently drilling our inventory to accelerate reserves and cash flow.”

Edward Moya, senior market analyst, The Americas, with OANDA, wrote in a newsletter that the focus for much of the week was on the European Union’s inability to reach agreement on a Russian oil ban, “which suggests we won’t have an immediate shock to the oil market.”

Moya said prices rallied during the week on optimism China’s COVID situation was not worsening and as risky assets rebounded.

“The crude demand outlook is not going to fall apart as the US enters peak driving season and as European air travel remains solid,” he wrote in his newsletter.

Moya noted that US rig counts continued to rise, “but until energy markets see stronger production levels reached, oil prices will likely remain supported here.”

In its Short-Term Energy Forecast for May, the US Energy Administration forecast West Texas Intermediate will remain above $100 a barrel through June then fall in the $90s, ending the year at $94.86 a barrel. The agency’s forecast ranges from a low of $48.31 to a high of $186.30 in December.

EIA also forecast US crude production will average 11.9 million barrels per day this year and a record 12.8 million barrels per day in 2023

“A high level of uncertainty remains in our outlooks, but we have consistently forecast that elevated crude oil prices would help drive record-level annual U.S. oil production levels in 2023,” said EIA Administrator Joe DeCarolis in the forecast. “Low global oil inventories coupled with continued high demand for gasoline, diesel, and other petroleum products means that increased production likely won’t have much impact on prices in the short term.”

The Henry Hub natural gas price will average $8.59 per million British thermal units in the second half of 2022, which is an 88% increase from the second half of 2021. This forecast is a significant revision from previous forecasts, largely because EIA updated its power generation modeling to better account for evolving constraints in the coal market.