Energy Prospectus

Opening Prices:
> WTI is down 67c to $47.30/Bbl, and Brent is down 63c to $50.28/Bbl.
> Natural gas is up 7.5c to $2.780/MMBtu.

MY TAKE: Oil price got ahead of itself because of "vaccine optimism" and natural gas became oversold on FEAR of another mild winter. Both are now moving back to reality. $45 should be support level for oil. Several winter storms moving through the Great Lakes area should push ngas over $3.00.
This is bullish for gas: https://weather.com/maps/ustemperaturemap
Keep an eye on the Chicago weather. When lows go consistently below 20F we should see 200 BCF draws from storage each week.
Higher natural gas exports should make up for less space heating demand.

Aegis Hedging Solutions morning notes:
Crude Oil:
WTI is down 67c to $47.30/Bbl, and Brent is down 63c to $50.28/Bbl

WTI retreated from its ten-month high on Monday, falling $1.36/Bbl for its worst drop since early November
Congress passed a stimulus bill as coronavirus infections continue to mount in the U.S.
New coronavirus mutation causes several countries to lockdown borders and limits travel

$900 Billion COVID-19 relief bill advances to the president’s desk following months of turbulent negotiations
Key provisions will include:
$284 billion for forgivable Paycheck Protection Program loans
Enhanced jobless benefits of $300/week and direct payments of up to $600 per person
$45 billion to support transportation services, including airports, Amtrak, and airline employees
AEGIS notes that the stimulus will likely boost short-term demand and help strengthen consumer spending as rising COVID-19 infections continue to stymie demand.

London COVID-19 variant prompts several countries to impose travel restrictions and lockdown borders
The variant has replaced other versions of the virus at a rapid pace, with the virus mutations increase the transmission rate. Current estimates suggest the new strain is up to 70% more contagious than its parent strain

India, Pakistan, Russia, Jordan, Hong Kong have suspended travel from Britain along with a host of other countries in the EU. Additionally, Saudi Arabia, Kuwait, and Oman have shut off their borders completely to mitigate the spread of the new strain

Natural Gas
Natural gas is up 7.5c to $2.780/MMBtu

Gas prices rise as weather models show cooler temperatures in Texas and the West for the 6-10 day window and mostly colder changes in the Midwest and south for the 11-15 day
The cooler changes amounted to 6.2 HDDs (heating degree days), or about 12 Bcf, over the 15 day forecast (CWG)

The remaining three months of the winter strip have rose 7.7c to $2.76 this morning

An apparent lack of shipping availability and high charter rates have pushed Italian utility Enel to cancel a February LNG cargo from Cheniere Energy (S&P Platts)
Price spreads to Europe and Asia from the U.S. to Europe and Asia are strong and have allowed U.S. LNG facilities to run at or near full rates. However, high tanker rates have reduced netbacks
AEGIS notes LNG shipped from the U.S. does not appear to be canceled for lack of demand or bad pricing, like we saw this summer.
Demand for LNG vessels is high enough to price a few voyages out of the market

New detailed report on the midstream sector from Stifel as of 12-22-2020.

If WTI stays under $50/bb: "Over the next decade, our E&P team expects lower-48 oil production to decrease by 39% from 2019 levels. They estimate 2030 volumes will be ~5.8 MMbpd compared to 9.4 MMbpd in 2019. The Permian is expected to decline the least at ~20%. The largest declines are in the Niobrara, Anadarko, and Eagle Ford. While we favor gas-weighted names, crude oil volumes in the Permian should hold up relatively better longer-term."

This is why I say the sub-$50 WTI is an unsustainable price. If U.S. oil production stays on steady decline, non-OPEC+ production will go on deep decline and demand for oil based products will soon exceed supply, OPEC+ will control the oil price and "rationing by price" will be necessary.

Oil Prices Slipping As New COVID Increases Worries
By Phil Flynn (Dec 22, 2020 09:29AM ET)

Oil prices are slipping into the holiday as a new strain of Covid 19 is overshadowing a relief package that Congress finally passed and concern that Russia is getting trigger happy on increasing oil output.

It seems Russia is seeing strong demand for their oil as Asia demand is strong and global inventories are tightening. Reports show that Russia wants to have OPEC Plus raise output by 500,000 barrels a day in February. Believe it or not, we may need that extra oil. Plus breaking reports that an oil refinery in Russia has caught on fire.

Javier Blass at Bloomberg points out that once again the global crude floating storage had another big drop last week at 2 million barrels a day bringing the total quite close to ‘normal’ levels, on @Vortexa data. The global crude oil supply is clearly is in a big deficit right now, despite the lockdown according to Blass. < Few people realize that demand for oil exceeds production today and that the difference is coming out of inventory.

I agree. Crude oil has all the makings of a semi supercycle as demand is coming back strong even as Europe continues on lockdown. U.S. demand will also start to rebound as the Covid vaccines become more available. The massive cuts in spending would suggest that oil producers will not be able to meet demand once the world reclaims 100 million barrel of demand per day. Those that doubt that supercycle prediction point to the U.S. shale patch. They believe that U.S. shale will be able to rise to the occasion and meet any shortfall. They point to a recent uptick in oil rig counts and the prospects for better prices.

Yet the shale optimists are not considering the financial condition of shale producers, They forget the inability for many to raise capital. Even if they can, banks who want to go green are not apt to lend money to dirty little oil companies. On top of that, you have an incoming administration that wants to get us off of oil. That goal will make it impossible for shale to pick up the investment slack for the globe and that means that we are headed towards a future oil price spike. Perhaps use the correction as an opportunity to get hedged for the coming spike.

Natural gas is getting support on strong international demand. Electricity shortages in China due to coal shortages is making U.S. LNG attractive.

Closing Prices:
> WTI prompt month (FEB 21) was down $0.95 on the day, to settle at $47.02/Bbl.
> In contrast, NG prompt month (JAN 21) was up $0.075 on the day, to settle at $2.780/MMBtu.