Energy Prospectus

Opening Prices:
> WTI is down 3c to $46.75/Bbl, and Brent is down 11c to $50.14/Bbl. < Six weeks ago, NOBODY was forecasting $50 Brent by year-end.
> Natural gas is up 4.8c to $2.601/MMBtu.

Matt Marshall, Aegis Energy VP will be the featured speaker on our next webinar set for Friday, December 18.

Aegis Energy morning notes:
Crude oil
WTI is down 3c to $46.75/Bbl, and Brent is down 11c to $50.14/Bbl

Oil is up nearly 40% since the end of November, strengthened by an improving global demand picture (Bloomberg)
Global gasoline and diesel demand rose to a two-month high last week, according to Bloomberg
AEGIS notes vaccine news has also lifted expectations for U.S. demand in 2021, while China and India’s robust purchasing of crude have helped offset COVID-induced demand loss in the near term. Both the prompt-month contract and the Cal 2021 strip reached their highest mark since March, settling at $46.78 and $46.82, respectively

The number of supertankers headed toward the U.S. rose to the highest level since early September (Bloomberg)
The number of ULCCs and VLCCs with the U.S. as their destination rose by two to a total of 24
Supertankers headed to China fell by six to a total of 87

The Trump administration announced on Thursday that it would auction off drilling rights in the Arctic National Wildlife Refuge in January (Reuters)
The sale will take place on January 6 and will include nearly 19 million acres
The move has already drawn heavy opposition as conservation and tribal groups, as well as a coalition of 15 states, have filed lawsuits

Natural Gas:
Natural gas is up 4.8c to $2.601/MMBtu

Natural gas prices are up 20c from the 2020 low of $2.399/MMBtu set on December 8 for the January contract
Calendar 2021 has also bounced off its recent low of $2.52/MMBtu set on Monday, to now trade at $2.701/MMBtu

The December weather forecast has slowly improved this week for the bulls, but is still trending warmer than normal

U.S. natural gas storage fell by 91 Bcf/d for the week ended December 4, more than the average analyst estimate
Inventories now stand at 3.848 Tcf according to the U.S. Energy Information Administration reported December 10
Storage volumes now stand 309 Bcf, or 8.7%, more than the 3.539 Tcf a year earlier and 260 Bcf, Or 7.2%, above five-year average of 3.588 Tcf

Closing Prices:
> WTI prompt month (JAN 21) was down $0.21 on the day, to settle at $46.57/Bbl.
> NG prompt month (JAN 21) was up $0.038 on the day, to settle at $2.591/MMBtu.

Another solid week for oil. WTI was up $0.52/bbl for the week ending December 11th. Covid-19 Vaccine Optimism is the primary driver, but supply & demand are continuing to tighten. There was a large increase in U.S. crude oil inventories, but looking at the details it was the combination of increased imports and lower exports. EIA's weekly reports tend to be even more WAG during the holidays.

The January NYMEX contract for natural gas added 19 cents. Winter has just started and we are one Polar Vortex away from a spike to over $3.00. The global LNG market is very strong and U.S. LNG exports will stay at maximum capacity (11 Bcf per day) all winter.

You all should register for our December 18th webinar. Matt Marshall, one of the top experts on the oil, gas and NGL markets is our feature speaker.

Matt's daily blog:
Natural Gas Bottom Line
After a horrible slide during November and early December, gas prices reached, then recovered from, lows this week. The January contract settled at $2.41 on Monday, but reversed course and closed near $2.59 on Friday. It was good to see Summer ’21 rise — up 12c to $2.69 — more than the winter tenors, showing that there are still active bidders in the curve.

Most AEGIS clients are no longer looking for many winter hedges. That part of the curve is well hedged and set. For those still needing winter hedges, we note that the warm start to winter has taken away much of the scarcity threat. We expect even chances of prices moving up or down, depending on weather.

There may be more gas available in storage to start summer as a result of low wintertime demand. We think summer 2021 prices dropped more than was reasonable, and this week’s price recovery perhaps corroborates our view. We still believe demand is outpacing supply, and prices need to move higher and stay higher to either (1) destroy some demand, probably gas-fired power generation, or (2) encourage more drilling and completions activity. The latter could come from higher gas prices or higher oil prices.

So, with a bullish outlook for Summer 2021 and the following Winter 2021-2022, consider costless collars for your hedges. But they are not for everyone. Consider two choices available during the day Friday:

$2.68/MMBtu fixed-price swap for Summer 2021
$2.50 X $2.83 costless collar for Summer 2021.
Which is better? It is a case-by-case decision. We expect many of our gas-weighted clients would find the swap value near the price needed for budgets. For those clients, swaps are likely a better choice. For those clients who could tolerate some downside risk, the collars are better. The lack of put skew helps make the collar a suitable choice.

Regarding basis hedging, it is an excellent time to consider Waha and Midcontinent (NGPL Midcont, Panhandle, ANR OK) basis hedges. Those forward curves are high and may have trouble getting better due to transportation-cost limitations. Check in with AEGIS Trading if you have any volumes to top off.