Energy Prospectus

Opening Prices:
> WTI is down 131c to $62.22/Bbl, and Brent is down 96c to $65.92/Bbl.
> Natural gas is down 4.2c to $2.735/MMBtu.

AEGIS Morning Notes
Crude Oil

Oil prices have weakened this morning as a wider market sell-off takes place
The rise in bond yields has been fueled by fiscal stimulus hopes in the U.S. and a post-pandemic economic rebound that could fuel inflation. The rise in bond yields has spread to money markets as well, with investors fleeing riskier assets like stocks

The Dollar Index (DXY) started the week in a downward trend reaching a bottom of $89.962 before sharply reversing to climb to $90.559, pressuring oil prices further

J.P. Morgan raises crude price forecasts, notes recent rally may be overdone
The bank lifted its 2021 Brent price forecast by $3 to $64/Bbl and its 2022 forecast by $6 to $72/Bbl
OPEC+ discipline will likely remain strong, and a modest increase in U.S. output of 500 MBbl/d above December 2020 levels adds to the bullish outlook, according to JPM
The bank noted that prompt futures seem to be a bit high relative to current fundamentals

Iran threatened to end the deal with International Atomic Energy Agency to monitor nuclear activities as the U.S. pressures the country to comply with the accords
The IAEA said Iran had denied it access for snap inspections at two sites where it later found uranium particles in June
The pressure by Iran will likely impede any talks regarding the easing of sanctions, as the U.S. has remained adamant that they will not be the first to re-join the JCPOA
The U.S. carried out airstrikes on Thursday evening, hitting Iran-backed militia groups in Eastern Syria, possible escalating tensions

Natural Gas

The second-largest U.S. natural gas inventory withdrawal EVER was posted last week, but with cold weather retreating, Henry Hub prices continued to fall
Storage declined by 338 Bcf to 1.943 Tcf for the week ended February 19, the EIA reported data on February 25
At -338 Bcf, the withdrawal was more than 200 Bcf larger than the five-year average
AEGIS’s supply and demand model now expects the gas market to enter injection season (early April) with about 1.45 Tcf in the ground < MY TAKE: If withdrawals from storage continue through April (IMO likely) it will be almost impossible to refill storage before the winter of 2021-2022 arrives. Refilling U.S. and Canadian natural gas storage is not "optional", utilities MUST HAVE AT LEAST 3,500 BCF IN STORAGE BY MID-NOVEMBER TO MAKE IT THROUGH A NORMAL WINTER.

Shell says the global LNG trade will grow by 2.8% in 2021, driven by Asia (Platts)
In Shell’s latest annual LNG outlook published February 25, the company sees the LNG trade growing by around 10 million mt in 2021. This is 2.8% growth compared to 2020 and brings total trade to 370 million mt < Global demand for natural gas was growing 3X faster than the global demand for oil pre-pandemic and there is no evidence that the demand growth rate will slow.
Asian demand in 2021 is expected to drive LNG growth in 2021, according to Shell
Outside of China, Shell expects LNG demand mostly flat, with estimates of either limited growth or a slight fall in consumption across Europe, Americas, Africa, and the Middle East
“As LNG demand grows, a supply-demand gap is expected to open in the middle of the current decade with less new production coming on stream than previously projected,” Shell said

Crude price gains continue on signs of scarce oil supply worldwide \
(worldoil.com)<https://www.worldoil.com/news/2021/2/25 ... -worldwide>

By Q3 OPEC+ will be in control of the global oil market. U.S. shale is no longer a threat.

Dan

I wonder if you wouldn't mind explaining the Gas market either here or in your weekly podcast.

Specifically, you talk about "MY TAKE: Refilling U.S. and Canadian natural gas storage is not "optional", utilities MUST HAVE AT LEAST 3,500 BCF IN STORAGE BY MID-NOVEMBER TO MAKE IT THROUGH A NORMAL WINTER." Then, there is some reference to 1.45 TCF in the ground. I'm assuming this is known storage or readily available gas from producing fields that just hasn't been extracted?

So, if I follow you, I think your warning of a possible shortage coming, i.e., higher prices, but is the shortage an "in ground deficit" and part of the 1.45 TCF (whatever that is), or above ground where there is not enough through-put capacity to extract it in time for Winter, or not enough above ground storage (3,500 BCF)?

Thanks

Closing Prices;
> WTI prompt month (APR 21) was down $2.03 on the day, to settle at $61.50/Bbl.
> NG prompt month (APR 21) was down $0.006 on the day, to settle at $2.771/MMBtu.

Reasons given for drop in oil price:
> Two day rally in the US dollar. Oil trades in US dollars, so when it goes up the price of oil and all commodities usually goes down.
> On the demand side: Gulf Coast refiners are having more trouble coming back on-line than expected. Due to the "Texas Freeze" causing unplanned power outages, many refineries were forced to shut down quickly without taking the standard step-by-step shutdown procedures. Shutting down a large refinery is a bit more difficult than flipping a switch.
> There is an OPEC+ meeting next week and traders are worried that they may increase production quotas. My guess is that they raise output by 500,000 bpd, which is not close to the more than 2 million bpd shortfall between global supply and demand we have today. Saudi Arabia and Russia know that their scheme to take control of the global oil market is working, so why mess it up now. U.S. oil production is declining, so kiss Energy Independence goodby.
> Maybe the main reason for the 3% drop in WTI is just profit taking at month end and the early selling on Friday triggered a lot of stop loss orders.

Natural Gas: I will discuss this on Monday's webinar.
I think what is a bit misleading is that the natural gas price that is quoted each day is the front month NYMEX contract for Henry Hub gas. The front month is now April. Those contracts close late in March and the physical gas will be delivered to Henry Hub, Louisiana in April. We have plenty of gas in storage to make it thru the end of this winter.

There is not a gas shortage in April. The problem is going to be refilling storage before the next winter heating season arrives in mid-Nov.

Demand for ngas also goes up quite a bit in the summer with demand for electricity.

The NYMEX contracts for Dec21 Jan22 and Feb 22 at now all over $3.10.