Video: 8 Compelling Energy Stocks. SPR (Strategic Petroleum Reserve) Reversing Soon. Russian Oil Sales. LNG.

SPR (Strategic Petroleum Reserve) depletion is ending. The US is draining this reserve by about 700,000 barrels per day. Eventually, this will need to be replaced and could increase demand by 700,000 to 1,000,000 barrels a day as the SPR is refilled. A possible swing in the supply-demand balance of 1.4 to 1.7 million barrels per day. This is significant for commodity pricing when one looks at the US demand of 19-20 million barrels per day.

Russian oil sanctions and caps have caused large buyers, India and China, to buy its discounted oil which is dragging global prices down. Russia is beginning to reduce the size of the discount for its oil that it sells. Overall, the SPR depletion and Russian sanctions have temporarily reduced crude oil prices, but lower prices mean less exploration and development today and higher prices in the future.

The European Energy Crisis has juiced US LNG demand. However, some unusual events have hurt natural gas demand and, thus prices. First, the Freeport LNG terminal being closed after an explosion damaged it over the summer has hurt export volume and US domestic natural gas pricing. In addition, Europe experienced historically high winter temperatures, significantly dampening natural gas demand, and the US has had a warm winter. All totaled, this has depressed demand for natural gas, and prices have collapsed to levels well below what they were before the invasion of Ukraine.

However, US LNG exports are expected to increase again as the war in Ukraine drags on, and the Freeport facility comes back online. By 2026, an additional 8-10 Bcf/d of US LNG capacity will come online, which will tighten markets and drive up natural gas prices. As a result, the total demand for natural gas should grow and create a strong backdrop for natural gas prices. The temporary weakness in gas prices is causing the industry to cut back on exploration and development spending, which means higher prices later.

Comstock Resources – CRK
Civitas Resources – CIVI
Vital Energy – VTLE
Ring Energy – REI
Southwestern Energy -SWN
Ranger Oil – ROCC
Ovintiv – OVV
Chesapeake Energy – CHK