Energy Prospectus

Opening Prices:
> WTI is up 72c to $47.29/Bbl, and Brent is up 72c to $50.69/Bbl.
> Natural gas is up 10.2c to $2.693/MMBtu.

Aegis Energy Morning Notes:
Crude Oil

An oil tanker was struck by an “external” source off the coast of Jeddah, a port city along the Red Sea
The tanker, BW Rhine, was filled with nearly 60,000 tonnes of gasoline, according to shipping data from Refinitiv
This new attack comes after a missile struck a Saudi fuel distribution center in Jeddah on November 23. The Red Sea is a vital shipping lane for global energy supplies

Iran announces oil production plans for 2021 as the country expects a loosening of U.S. restrictions
Oil Minister Bijan Namdar Zanganeh told lawmakers the government aims to pump 4.5 MMBbl/d of oil and gas condensate
The oil minister also said Iran would increase oil exports to 2.3 MMBbl/d, provided that the U.S. eases sanctions

The Baker Hughes oil rig count gained 15 rigs to bring the total active drilling rig count to 338.
258 drilling of oil and 79 drilling for natural gas (less than 50% of what is needed to stabilize U.S. production).

Natural Gas
Weather model changes from Friday showed an increase in colder risks at times (CWG)
The cooler shift was focused on the south and Southeast regions throughout the 6-12 day window
The changes amounted to an additional 20 Bcf of demand

The Mountain Valley Pipeline could be close to resuming construction within a 25-mile buffer area around part of the natural gas pipeline route that would cross the Jefferson National Forest
The U.S. Forest Service finalized a supplemental environmental impact statement for a 3.5-mile forest crossing (Platts)
The environmental review release could allow for a new right-of-way authorization and a special use permit from the U.S. Department of the Interior in early 2021, according to ClearView Energy Partners
The 2 Bcf/d project connecting Appalachian gas to Mid-Atlantic demand is nearly finished, except for a few key pieces that have faced permitting challenges

Kinder Morgan’s new Permian Highway Pipeline (PHP) started operations earlier this month and flowed about 0.2 Bcf/d on December 8, according to PointLogic
PHP will transport up to 2.1 Bcf/d of natural gas from West Texas to the Texas Gulf Coast < This should significantly reduce the Permian differentials for natural gas.
Associated gas flows ticked higher in the Permian at the same time PHP started up service. Output grew by 0.9 Bcf/d during 4-11 December (PL)
At the same time, northbound net outflows from the Permian into the Mid-Continent fell by nearly 0.5 Bcf/d during December 1-10
AEGIS notes that the addition of PHP and Whistler (3Q 2021) will likely redirect more gas volume to the east and into the Texas Gulf Coast, where LNG demand waits
These two new 2 Bcf/d pipes are slated to steal gas from other legacy pipes and the Permian Basin flow direction of last resort – northbound

On December 8 Reuters reported U.S. crude oil production is expected to fall by 910,000 b/d in 2020 to 11.34 million b/d, the EIA said on Tuesday, a steeper decline than its previous forecast for a drop of 860,000 b/d. Output next year is expected to slide by 240,000 b/d to 11.10 million b/d, a smaller decline compared to the previous forecast for a slide of 290,000 b/d. U.S. shale production has languished as oil prices collapsed after the coronvirus pandemic eroded global demand. But as hopes for a widespread rollout of a vaccine rise, U.S. crude oil production has recovered from the two-and-a-half-year lows touched in May. Producers have begun to add drilling rigs and brought wells back online in response to the rebound in prices. Still, the EIA said that U.S. crude oil production will decline to less than 11 million b/d in March 2021 mostly because of falling production in the lower 48 states, where declining production rates at existing wells is expected to outpace production from newly drilled wells in the coming months. The agency also expects U.S. petroleum and other liquid fuel consumption to decline 2.38 million b/d to 18.16 million b/d in 2020, unchanged from its previous forecast. In 2021, U.S. oil demand is expected to climb by 1.63 million b/d to 19.79 million b/d, a smaller increase than its previous estimate for a rise of 1.69 million b/d. Global consumption of petroleum and liquid fuels is expected to average 92.4 million b/d for all of 2020, which is down by 8.8 million b/d from 2019, before increasing by 5.8 million b/d in 2021, the EIA said.

MY TAKE: U.S. oil production will only hold at around 11 million barrels per day if we double the active rig count. That won't happen unless oil prices go a lot higher. The recent small increase in the active rig count is because public companies want to get more proven reserves included in their 3rd party year-end reserve reports. Those reports are the basis for their revolving credit lines. As I said in my Saturday podcast, demand for oil is seasonal and we are in the middle of the low demand period. Demand picks up starting in March and peaks in Q3.

Closing Prices:
> WTI prompt month (JAN 21) was up $0.42 on the day, to settle at $46.99/Bbl. < This is a 9 month high.
> NG prompt month (JAN 21) was up $0.091 on the day, to settle at $2.682/MMBtu.