Energy Prospectus

Opening Prices:
> WTI is up 3c to $63.25/Bbl, and Brent is down 1c to $67.04/Bbl.
> Natural gas is up 1.9c to $2.814/MMBtu.

AEGIS Morning Notes:
Crude Oil

Barclays lifts its oil price forecast on muted supply response, improving demand outlook
The bank sees Brent and WTI averaging $67/Bbl and $63/Bbl in 4Q2021, respectively
Barclays did urge caution as a few downside risks threaten the market in the near term, including easing OPEC+ cuts, rising COVID-19 infections from the new strains, and elevated positioning

OPEC+ to consider a 500 MBbl/d output increase at its March 4 meeting
The cartel is currently withholding 7.125 MMBbl/d of output, or around 7% of world demand, despite the recent run-up in crude prices
Saudi Arabia’s voluntary cuts of 1 MMBbl/d will be up at the end of March, at which point the country will gradually return that supply to the market
AEGIS notes, the recent run-up in crude prices has caused several trading houses to upgrade their price forecasts. With nearly 7 MMBbl/d of spare capacity on the sidelines, OPEC is still holding oil prices hostage

U.S. crude output dropped by more than 1 MMBbl/d last week for the largest weekly fall ever (EIA)
Refinery runs also fell to their lowest level since 2008, as the Texas freeze caused refineries to reduce inputs and shutter processing units
Some analysts were estimating that much more supply was knocked offline due to the freeze, however, weekly production figures are largely based on estimates. Monthly data should provide a more reliable figure

Natural Gas

Cheniere company executives expect a strong LNG market this year with improved price signals, few cargo cancellations, and strong Chinese demand (Cheniere, Platts)
Cheniere appears to have received three or four cancellations for the current quarter, based on the revenue it booked from offtakers, according to Platts
“Recent volatility in the LNG market and the rapid tightening of the market forward the end of last year and early this year helps reinforce the value to customers of a flexible, visible, long-term supply agreement with Cheniere,” CEO Jack Fusco said during a conference call with investors

AEGIS notes that the forward curves for Henry Hub and global benchmarks imply that LNG exports from the U.S. should flow this summer
U.S. Permian Basin producers Pioneer Natural Resources and Centennial Resources Development see output fully restored near the end of February, the companies said February 24
Last week’s deep freeze and widespread power outages forced production shutdowns for many oil and gas producers in the Permian Basin and elsewhere
“The winter storm last week did impact our portfolio of production by approximately 30 MBbl/d,” Pioneer CFO Rich Dealy said

AEGIS notes modeled natural gas production for the Lower 48 is now close to back to pre-freeze levels of 90.8 Bcf/d, according to PointLogic
The EIA is expected to show a 328 Bcf withdrawal from storage for the week ended February 19 (Bloomberg Estimates)
The Bloomberg economist range of estimates is -287 on the high end and -350 for the low estimate
The range of estimates is large because of the difficulty in measuring demand during an unprecedented event

Closing Prices:
> WTI prompt month (APR 21) was up $0.31 on the day, to settle at $63.53/Bbl.
> In contrast, NG prompt month (APR 21) was down $0.018 on the day, to settle at $2.777/MMBtu.

MY TAKE:
> Despite FEAR that OPEC+ will increase output quotas or that the U.S. will suddenly lift the sanctions on Iran, the price of oil keeps going up.
> The primary reason is that it is quite clear that post-pandemic, demand for oil based products will zoom past were demand was pre-pandemic. Combine that with the fact that non-OPEC+ production is down at least 3 million bpd and probably closer to 4 million bpd and we have an under-supplied oil market in just a few months.
> Even without vaccines, "COVID-19 World" is unsustainable. Eventually, humans must live with illnesses. We have no choice. Otherwise the supply chains break down and we have mass starvation at some point. Even the USA will run out of "helicopter money".
> Demand for oil in Asia and India is already above pre-pandemic levels.
> OECD oil inventories are falling fast.
> Oil is going to $70/bbl and maybe to $100/bbl due in part to inflation. Oil Cycles always over-shoot the mark.

> Natural gas prices have pulled back on the mild weather, but we are still going to get week after week of draws from storage that are larger than the 5-year average. Why? because U.S. natural gas production is down ~4 Bcfpd and export demand is higher by ~4 Bcfpd.
> It is still winter in the upper third of the U.S., so we have at least two more triple digit weekly draws from storage.
> We have enough gas in storage to make it through this winter, but draws through April will shorten the storage refill season and make it all but impossible to refill storage before the next winter heating season arrives.
> Global Warming will return in July & August (we old timers call it "summer") and gas fired power plants will be running at maximum.
> April is now the front month HH gas futures contract and the NYMEX strip prices for Q2 and Q3 are above the gas prices I'm using in my forecast models.