Energy Prospectus

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Opening Prices:
> WTI is up 12c to $48.48/Bbl, and Brent is up 8c to $51.58/Bbl.
> Natural gas is up 4.3c to $2.679/MMBtu.

Aegis Hedging Solutions LLC Morning Notes:
Crude Oil:
WTI is up 12c to $48.48/Bbl, and Brent is up 8c to $51.58/Bbl

Oil is headed for its seventh consecutive weekly gain and is currently trading near its ten-month high
Positive sentiment has centered around news that U.S. congressional negotiators are closing in on a $900 billion COVID-19 stimulus package, which should boost short-term demand

Strong demand in China and India has helped push prices higher as both countries snap up crude cargoes on the spot market. Data released by both countries this week showed that their refineries were operating near full capacity as transportation fuels rebounded sharply

Joe Biden announces cabinet picks to help administration tilt focus to combat climate change on “day one”
President-elect Joe Biden has selected former Michigan Governor Jennifer Granholm for Secretary of Energy, North Carolina environmental regulator Michael Regan for Environmental Protection Agency administrator, and Representative Deb Haaland of New Mexico as Secretary of the Interior, according to Reuters
AEGIS notes the picks are very progressive. If Republicans hold the Senate, Biden will be forced to pursue his aggressive “de-carbonization” agenda through regulations and executive orders

Goldman Sachs lifts its target oil price to $65/Bbl for end-2021 (GIR)
Goldman’s base-case forecast has tight oil production currently at 8.7 MMBbl/d, rising to 9.1 MMBbl/d by the end of 2021. Output will only grow to 10 MMBbl/d in 2022, still below levels reached in 2019. “Oil is a vaccine trade right now with robust demand seen in the 2H2021 as more people resume flying”, according to Goldman’s head of commodities, Jeff Currie

Natural Gas:
Natural gas is up 4.3c to $2.679/MMBtu

U.S. working gas in storage reached a three-digit withdrawal last week for the first time this winter season
Storage declined by 122 Bcf to 3.726 Tcf for the week ended December 11, according to the EIA
The withdrawal was in line with both the median and average survey of Bloomberg economist survey of a 122 Bcf withdrawal

The combination of cooler weather and an exacerbating gas supply crunch in Asia has sent spot prices for LNG soaring (Reuters)
Prices have moved high enough to kill off demand from companies from Pakistan to China who have cancelled LNG tenders
“Buyers with no alternatives are now paying top-dollar for prompt cargoes in January,” said Chong Zhi Zin, a director at IHS Markit
Prices for cargoes delivered in January were estimated to be about $12.70/MMBtu, up a $1.60 from the previous week, according to Reuters
Front-month prices had risen to six-year highs of above $13/MMBtu earlier this week before rolling to the February contract, according to traders

U.S. Shale Patch Reduced Breakeven Costs By 20% This Year
By Tsvetana Paraskova - Dec 17, 2020, 1:30 PM CST

Pressured by plunging oil prices and the need to adjust to the lower oil demand, U.S. oil producers have slashed costs and managed to bring down their average breakeven costs by nearly 20 percent to $45 a barrel on average, Bloomberg’s research service, BloombergNEF (BNEF), said on Thursday.

According to BloombergNEF’s estimates, U.S. oil producers have cut their average breakeven costs from an average of $56.50 per barrel last year to $45 a barrel now. Some of the most prolific areas in the U.S. shale patch, such as the core of the Permian and Eagle Ford basins, have even seen breakeven costs dropping to an average of $36.50 per barrel now, from $44 a barrel last year.

All companies, from the smallest driller to the largest corporations, have reduced capital spending this year in response to the collapse in oil prices, and they will continue to show spending discipline next year amid the uncertain recovery of oil demand and oil prices.

Due to the plunge in oil prices and oil demand, U.S. drillers quickly implemented drastic cost cuts. As a result, they improved efficiencies, optimized well and field operations, and renegotiated contracts, BNEF said.

Earlier this month, BNEF said that even though the U.S. shale patch had further reduced its breakevens over the past year, the decline in drilling costs alone may not be sufficient to help producers to lift production after this year’s downturn.

The Third-Quarter Dallas Fed Energy Survey from the end of September showed that most executives from 154 oil and gas firms—66 percent—believe U.S. oil production has already peaked.

Total U.S. crude oil production is set to remain close to its current levels of around 11 million barrels per day (bpd) through the end of 2021, as new drilling activity will not be enough to offset declines from existing wells, the Energy Information Administration (EIA) said last month. < I think U.S. oil production might drop to 10 million BOPD by the end of Q1 2021 because oilfield activity always slow during the winter.

By Tsvetana Paraskova for Oilprice.com

Closing Prices:
> WTI prompt month (JAN 21) was up $0.74 on the day, to settle at $49.10/Bbl.
> NG prompt month (JAN 21) was up $0.064 on the day, to settle at $2.700/MMBtu.

Just six months ago, I thought there was zero chance we'd see $50/bbl WTI by year-end. Now we are less than a dollar away. Cycles end when you least expect it and they usually overshoot, resulting in a shortage.