Energy Prospectus

Opening Prices:
> WTI is up 53c to $59.69/Bbl, and Brent is up 50c to $63.24/Bbl.
> Natural gas is down 2.5c to $2.583/MMBtu.

AEGIS Notes:
Crude Oil

OPEC+ is slated to meet today to discuss whether to resume a monthly schedule of gradual production cuts or maintain current output cuts
The cartel agreed to a monthly schedule of output hikes of 500 MBbl/d for the first three months of 2021 but only increased output in January, as demand concerns cause the group to take a more cautious approach
Covid-19 Lockdowns in Germany, France, and Italy have led to weak oil consumption in Europe. In contrasts, U.S. refiners processed the most crude oil since March 2020 last week
AEGIS notes, many analysts have said they expect the group to keep output steady, particularly as Iran continues to ramp up output

Biden’s latest infrastructure plan serves as surprise demand boost for oil
The plan allocates $115B for roads and bridges, which will require lots of Asphalt < Good news for BKEP.
As noted by Bloomberg, because Asphalt is derived from the heaviest hydrocarbons in a barrel of crude, heavy crude grades may see the largest impact, namely Canadian oil sands < Good news for Hemisphere Energy (HMENF).

The market received neutral data reported by the EIA on Wednesday
The EIA reported a draw of (-) 876 MBbls for the week ending March 26, below the estimate of a (-) 928 MBbls draw
Inventories for the U.S. are now at a surplus of 46.475 MBbls to last year and a surplus of 28.76 MBbls to the five-year average

Natural Gas

Southern California natural gas prices for Summer 2021 hit 3-year high (S&P)
SoCal City-gate Summer 2021 reached a +$1.509 premium to Henry Hub on March 31
A tightening supply outlook for Southern California’s gas market is contributing to the rally, according to Platts
Planned maintenance for summer in the utility’s service area plus lower year-over-year flows from the Permian have been contributing catalysts for the rise in price

The Akademik Cherskiy, a second Russian pipelaying vessel, is headed for Danish waters to continue work on Nord Stream 2 (Platts)
The Cherskiy will join the Fortuna pipelayer already in operation to lay the nearly complete Nord Stream 2 pipeline from Russia to Germany, according to the developer
The Fortuna had resumed pipelaying on February 6 despite having U.S. sanctions imposed against it by the Trump administration
AEGIS notes that a fully functioning Nord Stream 2 will supply Europe with additional piped gas and possibly back-out LNG imports to the EU

MY TAKE: High demand for U.S. LNG in Q2 is key to my forecast that U.S. natural gas in storage will move much further below the 5-year average and set the stage for a very tight natural gas market and higher prices in a few months. A hot summer will increase gas demand even more.

From Stifel:

Oil & Gas Exploration and Production
Raising Oil Price Forecast and Targets with 4Q20 Review - Michael S. Scialla
One year ago, we suggested that investors focus on E&P companies that could endure unparalleled oil demand destruction when we raised our rating on 6 stocks to Buy from Hold (see our 3/30/20 note: Focused on E&P Survivors). Since then, 8 companies, or 26% of our universe, filed for bankruptcy protection. Another 5, or 16%, were acquired. In our view, most of the remaining companies offer investors a compelling investment proposition predicated on superior FCF yields to other sectors. While we are raising our 2021-2022 oil price forecast 16%, our bullish stance on E&P stocks is not dependent upon another oil super-cycle. Accordingly, we are raising our target prices an average of 34% on 19 E&P stocks.

Oil Market Expected to Rebalance
Unlike some analysts, we are not convinced that a post-pandemic demand recovery and new-found U.S. E&P company capital discipline will
sow the seeds of the next oil super-cycle. Our oil model suggests global oil markets will be modestly under-supplied this year and modestly
oversupplied in 2022. We look for 2021 U.S. production to decline slightly y/y before growing by 0.5 MMBopd next year while global demand
rebounds to pre-pandemic levels in 2022. This should allow OPEC to increase production by more than 4 MMBopd next year over its current
level and reduce spare capacity to ~3 MMBopd. In our view, this scenario supports recent NYMEX strip prices as well as our longer-term
(2024 and beyond) WTI forecast of $55.

Natural Gas Markets Under-supplied
U.S. natural gas markets tightened by 5.7 Bcfpd y/y this winter as supply declined by 4.1 Bcfpd and demand increased 1.6 Bcfpd. Lower
associated natural gas production contributed to reduced supply while surging LNG exports boosted demand. As a result, natural gas storage
shrank from the high end of the 5-year range to near-normal levels over the course of the winter even though weather was 1.3% warmer than
the prior 4-year average. We look for markets to remain under-supplied for the remainder of this year and project a slight undersupply for
2022 despite a 2 Bcpd (2.2%) increase in dry gas production next year.

Closing Prices:
> WTI prompt month (MAY 21) was up $2.29 on the day, to settle at $61.45/Bbl.
> NG prompt month (MAY 21) was up $0.031 on the day, to settle at $2.639/MMBtu.

Investing.com — Crude prices swung from green to red and back on Thursday before settling up more than 2% as traders bought into OPEC+’s assurances that the global oil producing alliance could manage with higher output from May, despite questionable demand.

Members of the 23-nation OPEC+, meeting via a two-day video hook-up, agreed to raise output by 350,000 barrels per day in May and June, and 400,000 bpd in July.

Saudi Arabia was initially reported to be considering another 250,000 barrels per day of cuts in May, and 250,000 bpd in June, to provide continued support to the market. It terminated that idea after reaching a consensus with the other producers that an output hike may not be a bad thing after all, especially if demand for crude spiked in the coming months, allowing the kingdom greater market share.

Since OPEC+ production cuts began a year ago, the Saudis have single-handedly led the reductions, conceivably allowing U.S. crude producers, who aren't a part of the alliance, to grow their oil exports at the expense of the kingdom.

After weeks of remaining trapped at around 2.5 million bpd, U.S. crude exports jumped last week to 3.2 million bpd, data showed.

U.S. oil production also rose last week to 11.1 million barrels daily, suggesting that American energy firms were responding positively to crude prices trading at $60 per barrel or more. A daily production of 11 million barrels or lower had been the norm for the United States over the past few months. < The increase in U.S. production is just a rebound from the "Texas Freeze Off" in late February.

The rise in U.S. crude production has been in tandem with the increase in the US oil rig count, as drillers put more rigs to work to extract additional supply. As of Friday, the rig count, which is a measure for future production, stood at 337. That was up 193, or 80%, from an August record low of 244. < Compare to over 800 rigs drilling for oil two years ago.

Iran, which officially remains under Trump-era sanctions banning exports of its oil, has also been shipping with immunity to China since President Joe Biden came into office in January, those with knowledge of the matter say.

While Iran is a founding member of the original OPEC cartel, it has never contributed a single barrel to the production cuts of the past year due to the Trump sanctions. Its stepped up exports to China could thus be depriving other producers trying to legitimately grow their oil sales.

"If anything, the Biden administration could move soon to do a deal with the Iranians that would officially remove the sanctions on them, and it might be prudent for the Saudis to try and increase their market share ahead of that," said Tariq Zahir, crude trader at New York macro fund Tyche Capital Advisors.

Saudi Oil Minister Abdulaziz bin Salman seemed to acknowledge the weight of Iran’s role in the matter when he told reporters after the OPEC+ meeting that once Iran returns to pre-sanctions output, “we may remove the limit” on production.

Goldman Sachs (NYSE:GS) global head of commodities research Jeff Currie, meanwhile, predicted that Brent will hit $80 a barrel by the third quarter. Such lofty projections have often led to a crash instead.

Whatever the case, the diverse factors in play sent oil prices all over the place on Thursday, with the market rallying more than $2 a barrel, after dropping nearly $1 earlier.

Since April last year, OPEC+ — made up of the 13-member Saudi-led OPEC, or Organization of the Petroleum Exporting Countries, and 10 non-OPEC nations steered by Russia — has withheld at least 7.0 million barrels per day of supply from the market.

Those cuts helped WTI rise from a little under $36 per barrel on Oct. 30 to just below $68 by March 8. Brent went from beneath $38 to just above $71 in that same stretch. But over the past fortnight, the two benchmarks have lost about 10% from those highs.

Russian Deputy Prime Minister Alexander Novak told the OPEC+ meeting that global oil demand was anticipated to increase around 5.0- 5.5 million bpd this year.

But while the alliance’s production cuts had slashed much of the Covid-19 related oil glut seen from March 2020, oil stocks remained above the 2015-2019 level, an OPEC+ document circulated at the meeting said.

The rollout of coronavirus vaccines and supply curbs had underpinned the oil rally of the past four months. But that’s fraying now on concerns that near-term consumption was at risk, particularly in Europe where France has announced a new month-long lockdown.

Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, pointed this week to the market’s recent volatility as “a reminder of the fragility facing economies and oil demand.”