Energy Prospectus

Opening Prices:
> WTI is down 10c to $52.17/Bbl, and Brent is down 9c to $55.32/Bbl.
> Natural gas is up 8.7c to $2.533/MMBtu.

Aegis Morning Notes:
Oil:
Iraq to lower oil production to start 2021, to compensate for 2020 quota breaches (Bloomberg)
Iraq will pump around 2.6 MMBbl/d in January, February, its lowest production since early 2015
Exports will drop by an average of 300 MBbl/d, from 3.3 MMBbl/d to 3.0 MMBbl/d, according to Ali Nizar, the deputy head of SOMO

Iranian oil tanker seized in Indonesian waters on suspicions of illegally transferring crude to skirt U.S. sanctions (Reuters)
The Iranian tanker was transferring 2 MMBbl in crude to a VLCC owned by Shanghai Future Ship Management Co
AEGIS notes that conflicts in the gulf nearly always bodes well for prices, though the volatility historically caused by middle-east tensions seems to have dissipated

The market received bearish data reported by the EIA on Friday
The EIA reported a build of (+) 4,352 MBbls for the week ending January 15, well above the estimate of a (-)1,739 MBbls draw
Inventories for the U.S. are now at a surplus of 58.052 MBbls to last year and a surplus of 42.79 MBbls to the five-year average
AEGIS notes prices were down following the announcement as the consensus was that there would be a draw in inventories. While stocks in Cushing fell, a large build in PADD 3 stocks pushed the total number higher

Natural Gas:
The EIA reported a 187-Bcf draw from gas in underground storage on January 22 for the week ended January 15
The government data was the largest weekly gas draw so far this winter and inventories now stand at 3.009 Tcf
Storage now stands 36 Bcf more than a year-ago level of 2.973 Tcf and 198 Bcf more than the five year average of 2.811 Tcf

AEGIS notes that despite the strong gas fundamentals price has been weak with weather models often giving up cold forecast for milder ones

Tankers carrying LNG passing through the Panama Canal without a reservation are facing average wait times on average of 10 days, according to Platts
The constraints have been persistent since October
LNG vessels leaving the U.S. Gulf Coast headed for Asia usually prefer the westerly route through the Canal to Asia
The Panama Canal Authority blames higher-than-average arrivals and additional safety procedures to prevent coronavirus spread as a cause for the longer wait times
Bottlenecks at the Canal have forced some U.S. LNG shippers to traverse the more costly eastern route around the Cape of Africa to reach high demand Asian markets

Energy Stat: Global Reopening Likely Bottoming in January; Vaccine Timetables Shed Light on When "Normal" Can Resume
Pavel Molchanov, Raymond James Equity Research

The oil market's backwardation — the March 2022 WTI contract is currently $3/Bbl lower than the front-month contract — makes it easy to overlook the fact that 861 million people around the world are currently in lockdown. Recent weeks have shown that even China is not safe from lockdowns, and our global reopening tracker (with all the underlying data included in the appendix) is currently at the lowest level since August 2020. But, better days are ahead — and that emphatically applies to global oil demand, hence our back-end-weighted oil price forecast for 2021.
While lockdowns are far from over, it is our contention that January marks the trough for economic reopening - the first time in the past six months that we feel comfortable making such a prediction.

Lockdown saturation in Europe, the continent that accounts for 55% of lockdowns by population, is a key reason why; and, even more importantly from a medium-term standpoint, there is rollout of vaccines. Today, in collaboration with Raymond James' biotech analyst who has closely followed COVID vaccine development, we provide our latest thoughts on when things can return to, well, "normal", on a region-by-region basis. For the first time, there is a reasonable degree of visibility on the pace of vaccination, at least in the major economies, and this — as we have been pointing out for the past six-plus months — represents the means whereby global oil demand can get back to pre-COVID levels in mid-2022.

Stifel's Take

Oil & Gas Exploration and Production - Q420 E&P and Minerals Earnings Preview - Derrick Whitfield at Stifel Equity Research
- In preparation for the upcoming Q420 earnings season, we are updating our commodity estimates to reflect strip prices through 2022, maintaining our long-term WTI and HH price assumptions of $55.00/bbl and $2.75/mcf, and revising our production and capital forecasts to reflect recent discussions with management. In short, we are adjusting 2021/2022 estimates for rig count (-0.7%/-2.0%), capex (2.9%/-4.9%), and EBITDAX (19.3 %/17.3%) and increasing our 12-month price targets (11.2%). We are also outlining the most impactful themes and catalysts for the sector and coverage universe. For Q420 earnings, we believe investors are keenly focused on 2021 E&P capital and operational plans (assessing resolve to remain capital disciplined), the operating/regulatory environment under a Biden presidency and management views on the M&A environment.
Lastly, we are highlighting Brigham Minerals (MNRL) as a focus name for the quarter as the name screens well on all three of our quantitative assessments (production, price performance vs. cash flow revisions, enterprise value asset test).

Note that Stifel's oil and gas price assumptions compare to what I am using in all of my models of $52.50 for WTI and $2.75 for HH gas for 2021, increasing to $60.00 and $3.00 for 2022.

More from Stifel

Centennial Resource Development, Inc. (CDEV, $2.50, Hold; Target $1.80) - Downgrading CDEV to Hold following strong share price appreciation - Derrick Whitfield - We are downgrading CDEV to Hold from Buy following a 355% increase (+17% S&P 500) in the share price since October 28, 2020.

Oilfield Services & Equipment - Positive Takeaways from the First Week of 4Q20 Earnings, and Thoughts on Biden's Ban - Stephen Gengaro - Last week, Halliburton (HAL: $19.24, Buy), Baker Hughes (BKR: $22.17, Buy), and Schlumberger (SLB: $24.41, Buy) posted better-than-expected 4Q20 results driven by a stronger-than-expected rebound in U.S. activity and traction on cost-cutting/efficiency initiatives. In addition, ProPetro (PUMP: $8.31, Buy) and Solaris (SOI: $10.15, Buy) pre-released above-consensus numbers driven by increased North America activity. The key themes emerging thus far from 4Q20 earnings include: 1) U.S. land outpaced expectations and momentum has continued into 1Q21; 2) international activity remains sluggish, but likely bottoms in 1Q21 with potentially solid 2H21 improvement; 3) portfolio rebalancing and cost-out programs enacted in 2020 have bolstered margins and imply increased profitability going forward; 4) companies remained focused on disciplined capital spending, FCF and debt reduction; 5) E&Ps seem to be pushing for lower emission equipment; and 6) Biden halted approval of leases on Federal lands, which is a long-term headwind but could lead to accelerated activity over the next several quarters. 4Q results thus far bode well for U.S. pressure pumpers (Liberty: LBRT: $12.58, Buy is our favorite), as well as other names U.S.-leveraged names including DMC Global (BOOM: $50.91, Buy) and Cactus (WHD: $29.02, Buy).

Closing Prices:
> WTI prompt month (MAR 21) was up $0.50 on the day, to settle at $52.77/Bbl.

Aegis Hedging Solutions: "Buyers are vying for Control at/above $52.60. Continue with market-driven hedges from $47/bbl up to $52/bbl in Bal 2021 and Cal 2022. Only a weekly close below $51.44/Bbl will change the Trend to DOWN, giving producers less time to wait to consider hedges."

> NG prompt month (FEB 21) was up $0.156 on the day, to settle at $2.602/MMBtu.

Aegis Hedging Solutions: "Buyers are taking Control above $2.54. Producers who need to execute (minimum required) risk-driven hedges should watch for a close below the Control."