Oil markets are driving a sense of optimism in the natural gas market “not seen in years,” according to analysts at the Bank of America Global Research.
That’s because the collapse in oil prices accelerated the timeline for associated gas declines as many oil producers look to shut-in production or take frac holidays, Kallanish Energy reports.
Some dry gas producers might also defer production from the summer to the winter, supporting 2021 prices and tighter supply. The report published earlier this month, said that while WTI forecast prices declined from $48 a barrel to $33/Bbl, the 2021 natgas strip rallied from $2.3 per million British thermal units (MmBtu) to $2.75/MmBtu.
“Sluggish oil activity might make gas basins great again,” the analysts said in the report. “The natural gas market is pricing in a collapse in associated natural gas production over the next year as oil producers deal with an unprecedented oil glut on the back of Covid-19.”
However, BofA still expects the gas supply glut to remain this summer, requiring “immediate production cuts.” They forecast summer gas prices will average $1.75/MmBtu because of demand losses from power, industrial and LNG will offset associated gas production declines.
“Expect higher volatility as associated gas production moves on oil prices and not correlated with changes in natural gas demand,” the analysts said, pointing out the timing mismatch between supply and demand changes.
This post appeared first on Kallanish Energy News.