Energy Prospectus

Opening Prices:
> WTI is up 53c to $48.15/Bbl, and Brent is up 55c to $51.41/Bbl.
> Natural gas is up 3.8c to $2.343/MMBtu.

Aegis Hedging Solutions morning notes:
Crude Oil

Oil demand recovery remains likely to extend through 2022, according to Russian deputy prime minister Alexander Novak
Novak said, “oil demand levels are still around 7- 8 MMBbl/d lower than 2019 levels”, “We hope to reach pre-pandemic levels in 2021; However, we only expect growth of around 6 – 7 MMBbl/d
Novak said he hopes the group can raise production by 500 MBbl/d each month to reach 2 MMBbl/d by the end of 1Q2021

Libya plans to export 785 MBbl/d in January (Bloomberg)
The 785 MBbl/d figure excludes the Hariga and Zuetina terminals, which account for 258 MBbl/d and 94 MBbl/d in December, respectively
Last month’s export numbers were around 718 MBbl/d in December when excluding the Hariga and Zuetina terminal exports

Iraq exports 2.7 MMBbl/d in December
The country’s oil ministry has plans to double 4 MMBbl/d export capacity
The country has announced intent to remain fully compliant with the OPEC output quota
OPEC’s second-largest producer pumped 3.685 MMBbl/d in November, below its 3.804 MMBbl/d quota

Natural Gas

Prompt-month Waha is printing positive for the first time in five years
The price improvement appears to be primarily limited to the prompt-month contract as it has risen $0.18/MMBtu since December 25
The Waha/Panhandle spread is currently at its highest level since April 2015 as Panhandle has temporarily stopped being the resistance to Waha pricing in the near term

Sinopec is planning to raise imports of LNG to record rates as colder weather hits the country (Reuters)
China has reported power crunches in 3 northern provinces since early December, as an economic recovery, cold weather, as well as supply bottlenecks sent power loads at grids to near record-highs (NASDAQ)

Asian demand has helped drive JKM pricing over $10.00/MMBtu this winter while also likely helping U.S. LNG feedgas demand average 11.00 Bcf in December
Platts JKM, the benchmark for spot-traded LNG in East Asia, reached a 6-year high, closing at $12.514/MMBtu on December 28
Falling domestic prices in the U.S. along with rising prices in Asia have widened the spread, causing LNG to creep toward maximum capacity as feed gas rates reached 11.31 Bcf for December 29

By David Forest, editor, Strategic Investor
published on December 22, 2020

All the money-printing in the wake of COVID is good for hard assets. Gold and precious metals spiked first. But base metals like copper and nickel quickly followed.

Oil and gas are also hard assets. They’re going to lift from inflation as all the new cash sloshes around the economy.

Crude will have headwinds. Many investors are dumping oil for perceived ethical reasons. Demand might also remain subdued by COVID, especially in the first half of 2021.

But financial stimulus will lift crude by year-end. I don’t think the gains will be massive, but I see WTI closing out 2021 at $50 to $60 per barrel.

Natural gas might have bigger surprises in store. Even with the big rally last month, the current natural gas price of around $3 is still near its lowest level in 20 years.

There’s a lot of gas in storage around the U.S. right now. That’s negative for prices. But exports of liquefied natural gas by ship, as well as pipeline exports to Mexico, are both rising.

If Biden does clamp down on fracking, gas supply will be reduced. All of these things could cause a surprise spike in the natural gas price. I have a suspicion that 2021 will see gas top $5 for the first time since 2017.

Natural gas prices are seasonal, so any moves up won’t last that long. But they’ll create big lifts in gas stocks when they happen. The gains are going to be fast and furious.

I think gas closes out 2021 higher than now. Not by a lot, but maybe in the $4 to $5 range.

All of that will create some big opportunities in oil and gas stocks. Even with the massive November rebound, these companies are incredibly beaten up. The trick will be picking ones that can survive long enough to enjoy a recovery.

U.S. LNG set for strong 2021. Rising JKM gas prices for LNG in Asia brighten the outlook for U.S. LNG exports.
“We assume near-max utilization rates of US LNG export facilities next year,” Bank of America said.

Natural Gas Prices: MY TAKE is that the commodity traders are putting too much weight on the weather forecasts of a mild U.S. winter. They seem to be missing the fact that U.S. gas production is way down and exports are way up. Over the last quarter (13 weeks) the net change in ngas storage is a decline of 215 Bcf compared to the 5-year average. Just in the last three weeks, which were not super cold, draws from storage were a combined 83 BCF larger than the 5-year average. The next two weekly draws should also be larger than the 5-year average.

Yes, we still have sufficient gas in storage to make it through the winter, but if storage goes below the 5-year average by the end of March (my prediction) than it is going to be difficult to refill storage over the summer.

"Paradigm Shifts" cause big price swings in commodity prices. Today the paradigm is that we have plenty of gas and can easily ramp up production to meet demand. It is not that easy to reverse declining production.