Energy Prospectus

Opening Prices:
> WTI is up 83c to $66.11/Bbl, and Brent is up 80c to $69.35/Bbl.
> Natural gas is up 2.1c to $2.976/MMBtu.

AEGIS Notes
Crude Oil

EIA weekly data is due at 9:30 am CST. Here is what to expect based on a Bloomberg survey:
U.S. Crude Inventories: - 2,200 MBbls
U.S. Gasoline Inventories: + 516 MBbls
U.S. Distillate Inventories: - 1,469 MBbls
U.S. Refinery Utilization: + 0.22% change

Colonial Pipeline Co. told federal officials it would know by the end-of-day whether it is safe to restart flows to the pipe – (Reuters)
Gasoline prices reached the politically significant level of $3/gal for the first time since October 2014, prompting the Biden administration to hold a house briefing on the shortage on Wednesday at 6 pm CDT
The vital pipeline, which is responsible for around 2.5 MMBbl/d of transportation fuels, has now been shut since last Friday, causing a run on filling stations in several states

The IEA said the oil glut has cleared despite demand concerns in India – (Bloomberg)
In March, oil inventories in developed nations stood just 36.9 MMBbls above the five-year average (2015-2019), down from a surplus of about 250 MMBbls last year last summer
The agency also made a 630 MBbl/d downward revision to India consumption as the country deals with a COVID resurgence. Global demand was also revised 230 MBbl/d lower in 2021 to 96.4 MMBbl/d
Per IEA: Global consumption is on track for a 5.4 MMBbld (6%) rebound from 2020 levels

Natural Gas

Another below-average natural gas build is likely to be reported on Thursday for the week ended May 7
The EIA is expected to report a 75 Bcf inventory build for the week ended May 7, according to a survey of analysts by Bloomberg
A 75 Bcf injection would be less than the five-year average of 82 Bcf and expand stocks to 2.033 Tcf
The EIA’s South Central storage region is leading the largest portion of the stock deficit relative to last year, with inventories there sitting about 200 Bcf lower year on year (Platts)

The EIA lowered its forecasts for natural gas production for the remainder of 2021 (EIA’s STEO)
The agency’s May Short-Term Energy Outlook (STEO) lowered by 810 MMcf/d to 97.51 Bcf/d its natural gas marketed production estimate for the US in 2Q and trimmed the Q3 production forecast by 990 MMcf/d to 98.13 Bcf/d
Dry gas production was expected to stay flat in May, ahead of a rise starting in mid-2021, reflecting a higher price forecast for natural gas and oil, compared with 2020, according to the report
The EIA forecasts Henry Hub spot prices to average $3.05/MMBtu in 2021, a 50% increase from 2020

Phil Flynn at 9:10AM ET on May 12

The crude oil market that was falling a bit on reports of reduced refinery runs on the Gulf Coast are now rebounding on the fact, that the normally bearish International Energy Agency (IEA) is reporting that the global oil supply glut is gone years before the oil demand pessimists predicted. The EIA says that, “Progress in vaccinating the world against COVID-19 means the world’s economic recovery and demand for oil will outpace the output of top producers. The anticipated supply growth through the rest of this year comes nowhere close to matching our forecast for significantly stronger demand beyond the second quarter,” the IEA said in its monthly report, citing increased pumping from OPEC+ countries. In other words, the IEA is acknowledging what we were predicting months ago. Still, they have the “but” as in “but India’s COVID crisis is a reminder that the outlook for oil demand is mired in uncertainty. Until the pandemic is brought under control, market volatility is likely to persist.”

The EIA report also shows that jet fuel will climb to about 70% of the 2019 level this year. That means that with growth we could see overall oil demand exceed pre-covid levels, leaving us undersupplied globally late this year. Maybe the Biden administration should go beyond short-term rule to ease supply constraints due to the pipeline and get ready to address what could be a more significant shortfall in the future. If they fail to do so, it will cause sharply higher prices and will create big issues for an economy that is already fearing the threat of inflation.

AAA says that gasoline prices hit a national average of $3.00 a gallon and The Energy Report predicted months ago that this was going to happen. Admittedly, the pipeline issue helped hit that price, yet we warned months ago that this was coming. Reduced refinery capacity and investment and a rebound in gas demand made $3.00 inevitable. Now this summer could we hit $3.30? Yes. Get hedged and stay hedged as we have been saying all along.