Energy Prospectus

Opening Prices:
> WTI is up 8c to $60.63/Bbl, and Brent is down 24c to $63.90/Bbl.
> Natural gas is up 2.1c to $2.644/MMBtu.

AEGIS Notes
Crude Oil

OPEC+ panel revises demand estimates downward, signaling a more negative market view right before Thursday’s meeting
The panel noted, “despite the accelerated rate of vaccine roll-outs across the world, there are a rising number of COVID-19 infections globally, with lockdowns and travel restrictions being re-imposed in many countries.”
The revision was most pronounced in 2Q2021, where projections are now an average of 1 MMBbl/d lower than prior projections

U.S. shale oil production is set to decline through at least 2022 as producers resist the temptation to drill (Bloomberg)
Production in the five major U.S. oil and gas basins may shrink by another 485 MBbl/d by the end of this year, finishing December with production at around 7.1 MMBbl/d. Output may fall further to 6.95 MMBbl/d in 2022
The five major U.S. shale plays – the Permian, Eagle Ford, Bakken, Niobrara, and Anadarko – produced a combined 7.2 MMBbl/d in 1Q2021, down from around 8.9 MMBbl/d a year ago < As I have been telling you in each of my weekly podcasts, the U.S. is not drilling enough new wells to offset the decline of the existing wells. There are close to 200,000 horizontal wells in the U.S. and they are all on decline.

EIA weekly data is due at 9:30 am CST
U.S. Crude Inventories: – 928 MBbls (Avg. Bloomberg surveys)
U.S. Gasoline Inventories: + 413 MBbls
U.S. Distillate Inventories: +789 MBbls
U.S. Refinery Utilization: + 1.42% change

Natural Gas

Virginia regulators request to likely to force MVP timeline into 2022
The Mountain Valley Pipeline (MVP) project has been expecting a late-2021 in-service date
Virginia regulators said they would need at least until December 2021 to complete a water quality review for MVP
The Virginia Department of Environmental Quality, as part of the Army Corps process, said 120 days was not enough time for the state to complete its part of the review, according to the regulator’s March 25 letter
MVP is a 303-mile, 2 Bcf/d projects connecting Appalachian gas to Mid-Atlantic markets

A survey of analysts shows first net gas injection in 2021 for the week ended March 27
If confirmed on Thursday by the EIA, the net injection would come one week earlier than usual
The EIA is expected to report a 19 Bcf injection, according to the survey conducted by Platts
Both last year’s storage change and the five-year average showed a 20 and 24 Bcf withdrawal, respectively
Storage volumes at the end of the 2021-2022 heating season look to be at 1.746 Tcf, which compares to the 5-year average of 1.803 Tcf.

Energy Report: Mixed Messages
By Phil Flynn (Mar 31, 2021 09:33AM ET)

Mixed messages and seasonal weakness have the energy markets in a very choppy trading range. Oil prices await the outcome of the OPEC Plus decision as well as trying to get a handle on the Biden administration infrastructure plan as well as strong China data that could increase oil demand expectations.

We also saw a report from the American Petroleum Institute (API) that was mixed, showing a surprise 3.910-million-barrel increase in weekly crude supply but also a substantial 6.012 million barrel drop in gasoline supply. Distillate supplies balanced it out with a 2.595-million-barrel increase allowing the trade to see either bullish or bearish elements of the report depending on your point of view. Oil bears are pointing to another wave of COVID-19 for their base case for bearishness.

Reuters reports that Germany, Europe’s biggest oil consumer, has extended its lockdown until Apr. 18 to contain a third covid-19 wave. One third of French people have entered a month-long lockdown, and most of Italy, including its capital Rome and its financial center Milan, have curbs on business and movement. Lockdowns in Austria, Norway, and Switzerland have also been tightened. The renewed lockdowns and problems with vaccination could prevent the recovery of up to 1 million barrels per day (bpd) of oil demand in 2021, Rystad Energy said.

Yet OPEC is also aware of this. Reports coming from OPEC Plus are that Saudi Arabia pushed OPEC to lower its demand forecast to justify a rollover of their current 8.0 million barrel a day production cuts through June. The JTC gave in and revised oil demand down to 5.6 million bpd this year from 5.9 million barrels a day. If the Saudis decide to add to their voluntary 1.0 million barrel a day production cut, it could create an undersupplied market this summer.

China data suggests that the country is now be projected to overtake the U.S. as the world’s largest economy in seven years, might go on an oil consumption binge in the coming months. China’s manufacturing data rose to 51.9 from February’s 50.6 suggesting that China will need more oil. Still, covid worries are also hitting China according to reports. If China starts more lockdowns that could alter the demanding track. Yet this is not 2020, at least I do not think it is. Because of the efforts of project Warp Speed, the world has a vaccine. It just must be distributed. Europe is moving through the bureaucracy and is in worse shape than China and the U.S. so we believe that the lockdowns should be short as more get vaccinated.

In the U.S. that advantage is going to mean a big jump in gasoline demand, and it is already getting started. Reuters reports that, “U.S. gasoline sales for 2021 have exceeded prior-year levels for the first time since last March, when officials first started to widely impose coronavirus lockdowns, according to a report on Tuesday from the Oil Price Information Service by IHS Markit. However, demand still trails pre-pandemic levels, and the year-on-year increase is a bigger reflection of last year’s demand destruction rather than strong economic recovery this year, the report said. U.S. oil consumption crashed by 27% in April last year from the year prior, the Energy Information Administration said, as aircraft were grounded, and people were forced to remain at home to curb the spread of the coronavirus.

Gasoline same-store sales for the week ended Mar. 20 were 10.1% higher than 2020, said the report, which surveyed 25,000 fuel stations nationwide. Sales were still 16% below pre-pandemic levels.

I expect that we will see continued improvement in gasoline consumption. The pent-up travel demand as well as the reopening trade. While we may not see everyone commuting to work for a while, we still expect a lot more people will and that means that gasoline supplies may be tight. Summer blends and refinery restraint will get our national average back above $3.00.

Oil prices should also get support if it looks like Joe Biden’s infrastructure plan moves forward. Politico is reporting that Biden will unveil a $2 trillion proposal Wednesday to transform America’s infrastructure over the next eight years. Biden is looking for trillions of dollars in investments to rebuild the country’s roads, bridges, and transit; improve access to clean water and broadband; expand access to elder and disability care, and revitalize American manufacturing. Or, as the White House puts it, the plan would affect how we move, how we live at home, how we care for one another, and how we manufacture according to Politico.

Can OPEC Plus shock and awe us? Unlikely, but if the rollover is extended until June, that should reignite our oil rally.

Natural gas calls could be bought for the summer even as we are expected to get an early injection into inventory.

Closing Prices;
> WTI prompt month (MAY 21) was down $1.39 on the day, to settle at $59.16/Bbl.
> NG prompt month (MAY 21) was down $0.015 on the day, to settle at $2.608/MMBtu.

MY TAKE: Now that all of the Gulf Coast refineries are back online we should see steady declines in U.S. crude oil inventories. Three months ago I would have been pleased if WTI averaged over $55/bbl in Q1. Never mentioned is that NGL prices are much higher than I expected to see three months ago. Q1 results are going to be very good.