Energy Prospectus

Opening Prices:
> WTI is up 19c to $59.66/Bbl, and Brent is down 26c to $63.04/Bbl.
> Natural gas is up 18.9c to $3.101/MMBtu.
> Both oil and gas moved higher after the futures market opened.

AEGIS Morning Notes
Crude Oil

West Texas Intermediate has since retreated below $60/Bbl after trading above the thirteen-month high overnight
There is about 1.7 MMBbl/d of refinery operations in the U.S. have halted and deliveries via pipeline suspend as freezing weather hits the Texas energy grid and blackouts spread to other states in the Central U.S. (Bloomberg)
As much as 3 MMBbl/d of processing capacity could be off-line, according to Energy Aspects

The frigid temperatures have also led to oil supply disruptions in the U.S. (Reuters)
Close to 1 MMBbl/d of U.S. oil production has been lost this week after freezing temps caused power cuts (Bloomberg)
The WTI prompt spread flipped to contango for the first time in a month – as of Tuesday morning
It is likely due to acute loss of demand from refinery shutdowns as the remainder of the curve remains in steep backwardation

Natural Gas

Gas prices in the forward curve are up this morning, with the Summer ’21 strip above $3.
Gas for March delivery climbed 17c.
Concerns about supply spilled over into next winter, with Jan and Feb ’22 contracts up 8c.

Reduced gas production in West and South Texas has caused severe power and gas shortages in northern Mexico (Reuters)
On Monday, 4.77 million commercial and residential locations lost power, although state utility CFE said it restored power to 65% of users
Mexico president “AMLO” is seeking to limit dependence on foreign energy, and a CFE official cited the current events as “why Mexico must seek autonomy.”

U.S. gas production is down 16 Bcf/d; it dipped to 74 Bcf/d yesterday, down from near 90 Bcf/d earlier in the month (PointLogic)
AEGIS notes modeling gas production in the Texas plays is often difficult due to a small sample size of interstate pipelines; most pipelines receiving produced gas are intrastate and do not report daily nominations
Texas producing areas account for near 7 Bcf/d of the total curtailments

MY TAKE: Natural gas in U.S. storage will decline by at least 500 Bcf for the two weeks ending February 19. That will push gas in storage below the 5-year average and the gap will widen all the way through April. There will be a significant "Paradigm Shift" as the feeling that we have plenty of gas in the U.S. will go to FEAR that we won't be able to refill storage before the winter of 2021-2022 arrives in November.

Note from Stifel by Derrick Whitfield
Following earnings preview calls, our team held the view that the sector would retain its momentum based on recovery and reflation themes. While we believe crude prices are still leading near-term fundamentals at this time, we believe the drivers for sector out-performance remain in place, including 1) recovery in oil demand to 2019 levels, 2) sector capital discipline and execution on return of capital initiatives, 3) continued sector consolidation to drive enhanced business models and value propositions and 4) sustained strength in the reflation trade. Our conviction in the recovery and reflation themes has strengthened as the Majors and gas-focused E&Ps affirm maintenance capital outlooks. We also left our preview calls with the view that investors will remain cautious on federally exposed stocks until after the 60-day moratorium; however, recently issued BOEM and BLM permits seemingly lessen the risk, in our view, as it appears the Biden administration will allow companies to continue to permit valid existing leases. This note highlights our most impactful themes and favorite set-ups for the remainder of earnings.

Closing Price:
> WTI prompt month (MAR 21) was up $0.58 on the day, to settle at $60.05/Bbl.
> Also, NG prompt month (MAR 21) was up $0.217 on the day, to settle at $3.129/MMBtu.

AEGIS comments:
We are answering many questions this week on this topic: Cash prices for natural gas are high. How do I participate?

Bottom Line: The only sales you can make at the cash price are volumes that were not already committed to indexed, or “first of month” sales – usually your forecasted volumes. Any additional volumes – for example, if you temporarily boost well production – could be sold at daily cash prices if you can find a buyer.

Here’s why your prices do not fluctuate.

Most producers receive a combination of Inside FERC (IFERC) or NGI for regional basis, and NYMEX Henry Hub futures price

These prices are settled a few days ahead of the production month. For February gas, these already settled at the end of January during ‘bid week’.
As long as your hedges were done on this IFERC or NGI plus Henry Hub method, both your hedges and physical prices are already settled for February. Daily cash price fluctuation has no effect.
Then what production has not been sold “first of month” is sold daily at the spot price.

These indices are often published as an average in Platts Gas Daily
The spot prices, or cash prices, are those that are so high right now; they reset every day.
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I did get a note from GDP today. They were able to sell some gas at $17/mcf today.

(Bloomberg) -- Total U.S. oil production has plunged by nearly a third as an unprecedented cold blast freezes well operations across the central U.S., according to traders and industry executives with direct knowledge of the operations. < This seems high to me and most of the Permian Basin production should bounce back next week. It will take longer in the Rockies and Oklahoma.

Crude output has now fallen by about 3.5 million barrels a day or more nationwide, they said, asking not to be identified because the information isn’t public. Before the cold snap, the U.S. was pumping about 11 million barrels a day, according to last government data. Production in the Texas’s Permian Basin alone -- America’s biggest oil field -- has plummeted by as much as 65%.

Operations in Texas have stumbled because temperatures are low enough to freeze oil and gas liquids at the well head and in pipelines that are laid on the ground, as opposed to under the surface as practiced in more northerly oil regions. The big question now is how quickly temperatures return to normal.

The huge scale of the disruption has helped oil prices to rise to their highest so far this year. It’s also threatening to starve oil refineries, although such is the chaos in Texas right now that many of the largest plants have already had to shut down.