On March 8th, which feels like 3 years ago now, I wrote that one of the big winners from the collapse in OPEC+ would be natural gas.  Admittedly, I didn’t think it would mean that by August, gas weighted E&Ps would see their equity prices rise like they have, nor did I think natural gas would revert to $2.35/mcf as fast as it has. But, here we are and it’s worth taking stock as to why.

Oil weighted rig counts in the U.S. have fallen from 770 a year ago to 172 and show no sign of relenting. As oil weighted activity drops, U.S. oil will drop well below 11 mmbo/d and despite what some want to pitch as a “super supply shortage”, it is quickly forgotten than OPEC+ still has 7 mmbo/d shut in, and worldwide storage is at extremely elevated levels. I don’t foresee a move back to a $50+ world for “a while” and other than for debt leverage reasons, oil companies in the U.S should not be drilling wells. So… decline is inevitable, and with a GOR of 4000-5000, close to 10 bcf/d will be off the market by the end of the year.

Add to that a hot summer, challenges with rolling blackouts in California driven by their energy policy and a general interest in assets to hedge against a declining USD, and perhaps it all makes sense. But… don’t take your eye off the data.

#hottakeoftheday