Baytex Energy Corp T.BTE

RE:RE:RE:RE:RE:WTI Curve through July 2023

[balducci]

Yes, I meant a downward sloping futures curve. 

BayStreetWolfTO wrote: You mean backwardation? Backwardation creates a premium on near-dated contracts.

Contango is oil prices higher in the future

Backwardation (what we are seeing lower prices in the future) to many is bullish.

For instance Nymex Dec 2024 is around $75 last I looked. So Oil companies planning capex today would be more cautious. If that number was $95 you would have a much different approach to capex.

We want lower numbers further out 2024-2026...this will discourage long life capex I believe to get to $65 you need to look out to 2029 though.

This is a double edged sword. Some value oil companies at the future curve versus today's prices to be conservative. So from a market perspective none of the Cdn O&G are valued at $90+ oil.....they are valued at the forward curve (plus some discounting)

So for now we appreciate high prices and backwardation while we eliminate date and buyback cheap (future curve dated) share prices.

Enjoy!

balducci wrote: Thanks, that's very informative. 

One thing I heard on a podcast recently ('We Study Billionaires', Episode 589, Why Buffet is Investing in Oil Companies w/ Josh Young) was that (mild to moderate) contango is counter-intuitively bullish in that lower future prices mean producers will not rush to invest in raising production. 

jleer42 wrote:

First remember, theory is just that, it can differ from reality.

 

Anyway, assume futures prices represent the future spot price. Also assume simple trends, continually increasing, decreasing, or flat future prices. There are several things which can cause these trends, contango is decreasing futures prices and backwardation is increasing.

• Future demand & supply. If demand increases more than supply expect futures prices to increase and the opposite if supply increases more than demand

• Sellers getting rid of risk results in lower futures prices. O&G company hedging causes lower futures prices to induce buyers to take the offsetting position

• Buyers getting rid of risk results in higher futures prices. Refineries hedging input causes higher futures prices to induce sellers to take the offsetting position.

• Carrying cost of oil cause futures prices to decrease. If you want to store oil to sell in the future you need to pay to store it.

Many of the above futures price pressures are offsetting, think sellers and buyers both hedging, not all future oil is stored much of it is still to be produced. How you interpret futures prices can be a bit like reading tea leaves. In general the higher the futures prices are compared to the current spot price the more bullish it is for oil. Crude oil is usually in contango so lower future prices is not in itself bearish on oil.

 

balducci wrote: Would you be so kind as to interpret the WTI curve for us slower people? 

What does it signify as an indicator (bearish, bullish, neutral) and how / why? 

BayStreetWolfTO wrote: Interesting Q4 and 1H + July 23 difference about $3

Looking forward to 2023.

RECENT CONTRACTS	LAST
Crude Oil Oct 2022	$    90.06
Crude Oil Nov 2022	$    89.77
Crude Oil Dec 2022	$    89.34
Average Q4 2022	$    89.72
Crude Oil Jan 2023	$    88.73
Crude Oil Feb 2023	$    88.02
Crude Oil Mar 2023	$    87.32
Crude Oil Apr 2023	$    86.64
Crude Oil May 2023	$    86.08
Crude Oil Jun 2023	$    85.21
Crude Oil Jul 2023	$    84.57
Average 1H 2023	$    86.65