Energy Prospectus

Opening Prices:
> WTI is down 49c to $45.77/Bbl, and Brent is down 48c to $48.77/Bbl.
> Natural gas is down 16.5c to $2.410/MMBtu.

Aegis Energy Morning Notes:
WTI is down 49c to $45.77/Bbl, and Brent is down 48c to $48.77/Bbl
Crude is trading lower this morning, retreating from its nine-month high

Iran expects loosening sanctions from the incoming administration and has begun preparing to raise oil output
Saudi Arabia increases its official selling price by 80c for crude headed toward its Asian customers
Iran has begun preparing to raise oil output as Biden presidency approaches (Bloomberg)
After the 2015 nuclear deal, Iran returned 2 MMBbl/d in production quickly. Biden has said that he plans to re-enter the accord
JP Morgan Chase estimates Iran could reach 1.2 MMBbl/d in output next year if the incoming administration re-joins the agreement

Saudi Arabia hikes oil Arab Light official selling price (OSP) for its Asian customers as a sign of strong demand (Bloomberg)
The 80c increase was the largest in over five months. It signals that Saudi Arabia remains confident about the markets’ ability to absorb additional crude despite lockdowns in the U.S. and Europe. Analysts expected the price to increase by 65c, according to a Bloomberg survey
Saudi Arabia is the first Gulf nation to release its OSP’s and usually sets the trend for the other countries in the group

Natural gas is down 16.5c to $2.410/MMBtu
Natural gas prices are resuming last week’s sell-off as warmer weather forecasts persist

Calendar 2021 is down 9c, or nearly 4% this morning as the gas market lost 18.3 HDDs (~36 Bcf) in weather pattern shifts since Friday (CWG)
Gas in underground storage is another contributing factor to weak prices. The South Central Non-Salt, Midwest, and East gas regions are all at 95% capacity utilization, according to the EIA
Operators of the Panama Canal are considering adding additional reserved LNG transit slots in the future (S&P Platts)
Since late October, an LNG vessel passing through the Canal without a reservation would have to wait more than a week
“There is potential in the next few years to increase the number of LNG vessels transits,” the Canal Authority said in a statement to S&P
A recent increase in northeast Asian LNG demand has encouraged shippers in the Atlantic basin to shift some cargoes to the Pacific and away from Europe (Argus)

Closing Prices:
> WTI prompt month (JAN 21) was down $0.50 on the day, to settle at $45.76/Bbl.
> Also, NG prompt month (JAN 21) was down $0.169 on the day, to settle at $2.406/MMBtu. < We need Santa to send down the Polar Express.

BofA Equity Research Team
If Covid vaccine distribution is successful, Brent could hit $60/bbl by mid- 2021.
• Their positive oil price view reflects an accommodative Fed, rising inflation, improving growth and rebounding global mobility.
• During 2021, they also expect Iran and Venezuela to remain mostly offline. They see OPEC+ holding to its supply deal.
• The large 2.9mn b/d surplus endured in 2020 turns into a yearlong 1.6mn b/d deficit in 2021. Inventories will continue to draw down, and should normalize by end-2021.

Energy Report: Still Brexit
By Phil Flynn Dec 07, 2020 09:57AM ET

Still Brexit, after all these years. One might think that after three years of Brexit negotiations, it would fail to move markets, but it still does.

Last week’s Brexit negotiation optimism has been replaced with a stalemate over fishing rights, rules surrounding competition, and who is going to govern the agreement. The rift caused the British Pound Sterling to tank and has global markets flip into a risk-off mode. The drama weighed on oil at the start of the day even as there is more evidence that the global oil market is tightening.

Javier Blas pointed out that if you look at global crude oil floating inventories last week, it has dropped below 100 million barrels for the first time since mid-April, according to Vortexa. Floating oil had risen to 150 million barrels from April to June and since then it has dropped 110 million barrels. The combination of good OPEC plus compliance, as well as a big drop in U.S. output, has helped. Demand in China and the possibility of vaccines should send global oil supply below average next year. < As I pointed out in Saturday's podcast, if OECD crude oil inventories drop below 30 days of supply, WTI should rebound to over $60/bbl. - Dan

This trend is a slap in the face to the predictions of oil prices staying low due to the Covid 19 pandemic forever. The prediction that OPEC plus cuts would have no impact on supply was wrong. The prediction that low prices would not spur demand was wrong. I am sure we will be hearing from those who got it wrong saying that Wall Street and speculators are to blame. The reality is that this is another case of low prices curing low prices as production cutbacks combine with demand on an upward curve. With a vaccine on the way, the potential for a significant oil price spike next year is rising. The markets work and eventually find a way to work, and speculators play a significant and positive role in global oil price discovery that helps both users and consumers.

The increase in oil prices is starting to put a little life back into the US oil producers. According to Baker Hughes, the oil rig count increased by five rigs last week. That is ten weeks out of 11 the rig count has risen, and while the US oil producer has a long way to go to recover, there are some signs of life. Maybe that is why OPEC plus had such a hard time extending production cuts.

Natural gas has been taking a hit on above-normal temperatures across the Midwest. Bret Walts of Bamwx.com reports that the cooler start to the month in the East has panned out nicely so far, with even a decent snowstorm in the NE this past weekend. We’ll have a few more days of cooler air out there to start the week, but the gentle Pacific jet stream will become the dominant driver of the pattern into mid-late December. There could be a cold front in the East mid-month, but the Pacific’s mild air looks to win out into the latter part of the month with widespread warmth for the CONUS. Overall, all top drivers are indicative of warmer risks and lower demand, though some volatility in the polar vortex needs to, at the very least, be watched into the new year. To get sustained cold into next year, we’ll really need a disruption of the polar vortex to overpower the strong La Niña forcing which tends to bring mild air from the Pacific.