Energy Prospectus

Opening Prices:
> WTI is down 53c to $65.54/Bbl, and Brent is down 43c to $68.22/Bbl.
> Natural gas is up 4.4c to $2.957/MMBtu

AEGIS Notes
Crude Oil

WTI once again tested its multi-month resistance level of around $66.50/Bbl on Tuesday
The oil market continues to weigh the impact of unsanctioned Iranian barrels entering the market with improving demand in most regions globally
Oil prices on Wednesday morning were down nearly one percent but still trading just shy of $66/Bbl

The WTI prompt cash roll climbed $0.20/Bbl, the strongest since May 20. The roll trades in the three sessions after expiry (Bloomberg)
The cash roll is a physical spread that allows a trader to roll long positions from one month to the next
The spread serves as an indicator of supply and demand balances at Cushing
The key price spread is signaling that oil traders are bracing from a potential supply crunch ahead of summer driving season, according to Bloomberg

Crude oil inventory data is due this morning at 9:30 AM CST from the EIA
Bloomberg Survey Estimates (Average):
US Crude Oil Inventories: -750 MBbl
US Gasoline Inventories: -1,360 MBbl
US Distillate Inventory: -2,035 MBbl
US Refinery Utilization Change: 0.12%

Natural Gas

Pennsylvania dry gas production up 6% year-over-year despite local drillers plans to reduce spending
According to Platts, Chesapeake Energy Corp. has increased production by 36% compared to March 2019 and is responsible for much of the volumes
Given the limited takeaway capacity in the Appalachia, only 1-2 incremental drilling rigs are likely to be added – Goldman

June ’21 Henry-Hub contract is set for expiry today
The contract reached a record-high of $3.10 on May 17, 2021, but has since retreated back down to $2.95
Weather models have changed dramatically since May 17, with cooler temperatures expected in the first half of June. These bearish weather forecasts have likely fueled the sell-off

The Department of Homeland Security (DHS) announced it would issue definitive rules in the next few days to address cybersecurity concerns on U.S. pipelines
A requirement that pipeline operators report cyberattacks to the federal government is expected to be announced
FERC Chairman Richard Glick, along with other members of Congress, have called for cybersecurity authority to be transferred from the TSA to the Department of Energy

Oil Squeezed Between Conflicting Suppy-Demand Fundamentals
By Investing.com (Pinchas Cohen/Investing.com)Commodities1 hour ago (May 26, 2021 08:25AM ET)

Oil prices have been hitting a ceiling at the $66 level. That's where it’s trading now, slightly below the highest levels for the commodity since October 2018, when prices peaked just under $77.

There are currently two primary narratives providing conflicting forces that could drive the price of oil out of its current range—in one direction or the other depending on the level of demand for oil, or lack thereof.

The "Demand Narrative" notes that since the June-July WTI time-spread, called the prompt cash roll, traded on Tuesday at 20 cents a barrel—the highest since May 2020—demand at the US's major crude oil storage hub in Cushing, Oklahoma could increase since that metric is considered a leading indicator of the pressures on supply and demand.

That strength corresponds to the surge in commodity prices, bolstering the opinion of some investors who believe that energy prices are set to soar too. As well, demand pressure could escalate as the upcoming, post-COVID summer driving season approaches, which could be more robust than usual after the pandemic kept travelers and vacationers at home throughout the past year.

Conversely, the "Supply Argument" posits that the pent-up demand described above, could be offset by soon to be released Iranian oil supply, which till now has been off the market. The Middle Eastern oil producer has been negotiating with the US about reviving the Obama-era 2015 nuclear deal and removing sanctions placed on them by President Donald Trump’s administration which has kept Iranian oil off the market...at least officially.

The price of oil has weakened as it reached the top of the range, below $67, where supply has been outstripping demand ever since prices returned from -$40 levels during April 2020 when they briefly went subzero.

However, take a look at demand within the range. As opposed to supply, which has been fixed, demand has been rising from $57-$58, to the mid $60s and finally to the upper half of the $61 level. If this trend, in which demand rises against fixed supply, continues, buyers are on course to overwhelm sellers, pushing prices above the bullish pattern.

This completion will probably trigger a series of events that would help the price explode higher. Short covers and triggered longs will attract speculators, which would presumably push prices even higher.

Closing Prices;
> WTI prompt month (JUL 21) was up $0.14 on the day, to settle at $66.21/Bbl.
> NG prompt month (JUN 21) was up $0.071 on the day, to settle at $2.984/MMBtu.

JUL21 will be the prompt month ngas contract tomorrow. It closed at $3.022 today.