Energy Prospectus

Opening Prices:
> WTI is down 10c to $65.92/Bbl, and Brent is down 14c to $69.49/Bbl.
> Natural gas is down 1.0c to $2.658/MMBtu.

AEGIS Morning Notes
Crude Oil

JP Morgan lifts U.S. oil production outlook
The bank raised its crude production forecast to an average of 12.9 MMBbl/d in 2022 and 11.8 MMBbl/d by December 2021
This notion is consistent with the upward revisions to the EIA’s STEO forecast released earlier this week
AEGIS notes that U.S. production could threaten the OPEC+ agreement as member countries will not idle production to lose market share to U.S. producers

Indian oil demand drops to lowest since August amid high prices (Bloomberg)
The worlds third-largest crude importer saw consumption fall by 5%, to 17.2 MM tons in February, its largest annual drop since August
According to ministry data, it’s the fourth consecutive monthly drop since October

OPEC expects most of oil demand recovery to take place in 2H 2021 (Reuters)
In its MOMR, the group said demand would rise by 5.89 MMBbl/d in 2021, or 6.5%, up slightly from last month, but the group cut its forecasts for the 1H2021
“Total oil demand is foreseen to reach 96.3 MMBbl/d with most consumption appearing in the 2H 2021.”

Natural Gas

Natural gas storage volumes declined less than what many analysts were expecting for the second consecutive week
Storage inventories decreased by 52 Bcf to 1.793 Tcf for the week ended March 5, the U.S. EIA reported March 11
The draw was 21 Bcf lower than the 76 Bcf the Bloomberg survey showed
It is possible that only three net withdrawals remain before the turn to net injections, according to Platts. Late March and April are a time of year where gas storage week-to-week can flip back and forth between net injection and net draw depending on weather forecasts

The U.S. Court of Appeals for the 4th Circuit found that North Carolina regulators will have to reconsider their denial of water permits for Mountain Valley Pipeline’s (MVP) proposed Southgate natural gas transportation project (S&P)
The court also found that the regulators’ decision to deny the permits “is consistent with the state’s regulation and the Clean Water Act.”
However, the ruling will allow MVP another chance to gain the necessary approvals for Southgate
Southgate is a 375 MMBtu/d, a 75-mile extension of the MVP mainline from Virginia into North Carolina
Gary Kruse of LawIQ believes the 4th Circuit was essentially leading the regulator on how to make the permit denial valid, so the court’s decision is unlikely to offer much help

Friday, March 12th, 2021

Oil prices regained lost ground towards the end of the week, as tight supplies are forcing a global drain in inventories. “Overall, we are bullish on oil demand continuing its upward trajectory in tandem with vaccine programs and the resumption of economic activities,” Bjornar Tonhaugen of Rystad Energy said in a statement.

Closing Prices:
> WTI prompt month (APR 21) was down $0.41 on the day, to settle at $65.61/Bbl.
> NG prompt month (APR 21) was down $0.068 on the day, to settle at $2.600/MMBtu.

WTI is now building a strong support level at $65/bbl.

By Lucia Kassai
(Bloomberg) -- For evidence that OPEC+’s strategy is
working, consider what’s happening within the massive oil tanks
dotting the Caribbean islands.
Since Saudi Arabia stunned the global oil market with a
large cut in crude production in January, traders have been
draining crude supplies from St. Lucia and Freeport in the
Bahamas to capitalize on the nearly 35% surge in crude prices.
Inventories in the region are now at a 17-month low and less
than half the peak reached in June, according to industry data-
analytics firm OilX.
The rapidly depleting inventories in the Caribbean -- which
serves a sort of transfer station for the world’s oil markets --
illustrate how staggering the turnaround in crude prices has
been. Nearly a year ago as demand was plummeting because of the
pandemic, Saudi Arabia and Russia kicked off a petroleum price
war that resulted in oil futures falling below zero. The market
moved into a state of contango, when prices in the near term are
lower than those out into the future, and traders frantically
searched for tanks to stockpile crude as they waited for a
recovery.
Now, oil markets are in deep backwardation because of OPEC+
stunning decision earlier this month to maintain production
cuts. Brent oil for prompt delivery traded at 63 cents a barrel
above that for delivery another month out, more than double what
it was at the beginning of February. As a result, traders in the
Americas are removing barrels from storage a month or two
earlier than expected, according to people with knowledge of the
situation.
OPEC+ Squeezes Oil Production Tight to Protect Price
Recovery
The depletion of inventories extends beyond the Caribbean.
In Central America, Panama’s Pacific terminal of Charco Azul
used by Chinese and U.S. West Coast refiners experienced a
similar phenomenon after tankers removed 8 million barrels last
month, a 33% increase from January, data compiled by Bloomberg
show.
The outflow is happening so rapidly that it is contributing
to a lull in demand for physical crude from the North Sea and
West Africa, the people said. The pace of drawdowns is expected
to accelerate in coming weeks with U.S. Gulf refiners continuing
to ramp up operations following the freezing temperatures that
hit Texas in February while Asian refiners are set to emerge
from planned maintenance.