Energy Prospectus

Opening Prices:
> WTI is up 73c to $51.56/Bbl, and Brent is up 84c to $55.23/Bbl.
> Natural gas is down 8.1c to $2.648/MMBtu.

Aegis Morning Notes:
Crude Oil

Europe lockdowns threaten fuel demand recovery
Most of Europe is now under the strictest restrictions, according to the Oxford stringency index, which assesses indicators such as school and workplace closures, and travel bans (Reuters)
The U.K. imposed a new national lockdown on Monday that is expected to last six weeks. Additionally, Germany extended its lockdown until the end of January, and Italy extended its lockdown to January 15. The lockdowns have expanded beyond Europe, with Shijiazhuang, the capital of China’s Hebei province, having banned all residents from leaving the city
In response to the renewed lockdowns, Goldman updated its 1Q2021 market outlook to reflect weaker market conditions

Oil prices above the $50/Bbl mark will not encourage significant production growth (Bloomberg)
Bloomberg estimates that at $50/Bbl, nearly all shale-plays are profitable. The most productive U.S. oil play, the Permian Basin, needs oil in the low to mid $30s to break even
Many producers have said that price alone will not encourage more drilling and completion activity. A more balanced market is required for U.S. shale companies to grow production. Still, prices above $50/Bbl will allow shale producers to pay off debt and strengthen their balance sheets

U.S. retail gasoline prices are at their highest since the pandemic began (Reuters)
The U.S. national price average for regular unleaded gasoline was $2.29/gal on January 7, 2020
The average price of gasoline has increased by 5c or 2% this week. Still, prices are walking a tight-rope as additional lockdowns threaten fuel demand

Natural Gas

Gas futures pare early-week gains, as gas prices have dropped 7c this morning to trade near $2.65/MMBtu
Record-high gas/electricity prices in Asia have helped keep U.S. LNG exports near 11.1 Bcf/d. JKM gained $1.70 yesterday and is trading at $17.250/MMBtu (Bloomberg)

Additionally, strong weather forecasts toward the end of January have helped support prices this week,
The EIA reported a storage draw of 130 Bcf for the week ending January 1
Total stocks now stand at 3.33 Tcf, as the draw was in the range of analyst expectations calling for a 121 to 157 Bcf pull
The draw was much stronger than last year’s 48-Bcf withdraw during the corresponding week, as well as with the five-year-average of 115 Bcf

Potential polar vortex could hit the U.S., creating a price spike for gas
Weather forecasts point to polar vortex conditions in the second half of January that could lead to Arctic air being pushed down into the U.S. Northeast and Midwest, leading to significantly higher HDDs and accompanying gas price (Platts) < If you watch the WeatherBell weekly updates you know that high pressure is building in the upper atmosphere over the North Pole. That pressure pushes down on the super cold air closer to the surface. That is want causes a "Polar Vortex" and sub-zero temps. Asia has been having a record cold winter, which is why natural gas prices in Japan and Korea are ski high in the JKM market.

Big oil and shale producers ride crude price run-up . Barron's . Oil prices continued to advance on Thursday, two days after Saudi Arabia surprised the market by volunteering to cut 1 million barrels of daily output in February and March. Brent crude, the international benchmark, was around $54.52, up 0.4% for the day, and West Texas Intermediate, the U.S. standard, is solidly above $50, where it was before the pandemic choked off demand.

Shale CEOs pledge restraint as oil prices rise . Houston Chronicle . The new boss of Devon Energy Corp. said he won’t let this week’s rally in oil prices tempt him to return to the days of rampant production growth at any cost, becoming the latest shale executive to call for restraint. “I have a hard time seeing the need for U.S. producers over the next several years to get back to double-digit growth,” Chief Executive Officer Rick Muncrief said in an interview. “For this management team, if we really think about 2021, let’s keep it flat.”

Natural gas prices projected to jump in 2021 on strong export demand, moderate production . NGI . Increased domestic industrial energy use, coupled with strong and ongoing demand for U.S. exports, could more than offset a gradual rise in production and drive natural gas prices this year well above the level at which they finished a pandemic-plagued 2020, analysts and industry insiders say. Analysts at Raymond James and Associates Inc. estimated gas futures could reach $4.00/MMBtu by the end of 2021.

Polar vortex conditions could form, potentially driving up US power, gas prices . S&P Global . US weather forecasters said there are indications that cold air outbreaks could begin during the third week of January while polar vortex conditions could develop, bringing Arctic air into the Midwest and Northeast, which could increase power and natural gas prices. "Just prior to the end of December and ongoing now through Jan. 6, 2021, there has been a surge in temperatures in the stratosphere above the Arctic Circle," Paul Pastelok, AccuWeather's lead long-range meteorologist, said in an AccuWeather report.

Spot prices for liquefied natural gas (LNG) delivery in Asia jumped to a six-year high. A cold winter across the northern hemisphere is contributing to price gains. Javier Blas of Bloomberg notes that at least one LNG spot cargo was sold for $33-$36/MMBtu, which would be a historically high price.

When I worked at Hess back in the late 1990's we once sold gas into the NYC market at over $60/mcf. When I saw the check from the utility company that paid it, I thought the decimal point was in the wrong place. This is what happens during a Polar Vortex.

Closing Prices:
> WTI prompt month (FEB 21) was up $1.41 on the day, to settle at $52.24/Bbl.
> In contrast, NG prompt month (FEB 21) was down $0.029 on the day, to settle at $2.700/MMBtu.

WTI posts a weekly gain of $4.62/Bbl; Prompt-month gas also gained 12c on the week