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Oil (CL1:COM) was up ~3.5% on Wednesday as a bearish DOE inventory report was offset by an uptrend Outlook from the IEA and news that Vitol is ceasing the company’s crude oil trading activities in Russia. natural gas (NG1:COM) surged nearly 6% on news of colder weather to surpass $7.00 for the first time in 13 years. European natural gas traded higher and seaborne thermal coal contributed to Tuesday’s gains, with Newcastle prices for May delivery trading above $320/t. Even refining margins recovered as the IEA drew attention to tight product markets and accelerated demand for distillates from increased international travel.
The coordinated release of strategic oil reserves reduced concerns about near-term supply shortages; However, it has done little to solve structural supply problems. Adding corn and soybeans to fuel supplies, increases in which the White House announced Tuesday, will likely have a similar impact.
BlackRock’s (BLK) Fink said on Wednesday that increased energy prices “will stimulate a tremendous amount of investment”. In fact, the Department of Energy is calling for US thermal coal production to grow by 7.4% in 2022. Whether coal companies will respond to a short-term price signal after a decade of targeted attacks from Washington and Wall Street remains to be seen. Pioneer (PXD) CEO pointed out during a testimony before Congress just last month that the industry is largely unable to scale up investments due to supply chain constraints. Morgan Stanley wrote this week that European natural gas prices will remain “higher for longer” as the Netherlands moves ahead with plans to shut down the continent’s largest natural gas field (XOM) (SHEL).
Oil (USO), gas and coal prices due for delivery in May 2022 have seen wild price swings in recent weeks. However, the long-term prices speak a clear language. Since the coordinated SPR release was announced in late March, crude oil contracts for delivery in June 2023 are up 7%. Natural gas prices for June 2023 delivery have increased by 20%. And at-sea thermal coal prices for June 2023 delivery are up 32%. There may be debates in the press about improved short-term supply/demand balances and increased investment to limit long-term energy prices; Commodity futures markets, however, are fading the narrative.
Continental (CLR) and EQT (EQT) led oil & gas stocks higher on Wednesday, with both stocks gaining ~4%. Over the past month, Continental (CLR) is up 15% despite near-term price volatility, while EQT (EQT) is up over 65%. Peabody (BTU), the largest thermal coal producer in the U.S., was up more than 5% on Wednesday and over 55% over the past month. Even uranium stocks like Cameco (CCJ) have rallied, up 2% on the day and 22% over the past month, as politicians call for more energy while attempting to remove Russian supply from global markets.
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