Energy Prospectus

If we have a hot summer, the price of natural gas should go a lot higher.

Opening Prices:
> WTI is down 46c to $68.77/Bbl, and Brent is down 50c to $70.99/Bbl.
> Natural gas is up 9.0c to $3.160/MMBtu.

AEGIS Notes

WTI crude fell for the second consecutive day after briefly touching $70/Bbl early Monday morning
The drop in oil prices coincided with broader markets where the dollar gained, and equities retreated

Iran: Diplomats will meet this week in Vienna for the sixth round of talks aiming at reinstating a 2015 accord that put a cap on Iran’s nuclear activity in exchange for lifting sanctions (Bloomberg)
There is a high likelihood that a deal will be struck, according to analysts and traders. An agreement to lift sanctions would allow Iran to export up to 2 MMBbl/d sometime in 2H 2021
According to shipbroker Gibsons, Iran has nearly 70 MMBbl of oil in floating storage, ready to hit the market if sanctions are lifted. This is about the same amount of oil in tanks at Cushing, Oklahoma, at max capacity

Natural Gas

LNG feed-gas flows hit their lowest level since late February (Bloomberg)
According to Bloomberg, only 8.57 Bcf/d of gas flowed to LNG facilities on June 7, 2021
Gas flows to Cheniere’s Sabine Pass, and Corpus Christi facilities fell by 870 MMcf/d and 430 MMcf/d from their 30-day moving average, respectively. Flows to Freeport LNG were also down by 890 MMcf/d

Heatwave slated to boost gas-fired power generation across the U.S. West (Platts)
Since April 1, gas-fired power generation in the U.S. Southwest has averaged 2.67 Bcf/d, nearly 220 MMcf/d more than in 2020 over the same period, according to Platts
The heatwave is forecasted to set record highs in the U.S. West during the week ending June 11, with temperatures in the U.S. Pacific Northwest expected to reach the upper 90’s and even 100’s

As I posted here yesterday, there is strong technical and psychological resistance at $70. However, I do think WTI will move a lot higher over the next six months.

Energy Report: $70 Slip
By Phil Flynn Jun 08, 2021 09:29AM ET

Crude oil prices seem to have lost their mojo as the $70.00 test was met with resistance and profit-taking. It does not help that there is not a lot of new news. There were concerns about a drop in Chinese imports, but we all know that is most likely temporary. There were talks about the resumption of the Iranian nuclear talks that still look like a longshot when it comes to lifting sanctions. There is a story from Bloomberg about 6.0 million barrels of oil in floating storage that does not fit the bullish case for oil and based on market structure, does not even make sense. Yet what looks bearish short term may be more bullish.

China’s attempt to cool commodity prices may work in the short term but in the long term, it is like taming a wild animal. When the tiger turns on you, you had better watch out. You had better watch out when we get our weekly crude oil data from EIA that should show a sizable drop in U.S. crude supply and that should be enough to give the market a boost. In the short term the lack of news is giving bears a point to get back some losses, but they had better get them while the getting is good.

The AFP reports that the United States, which has for two months been holding indirect talks with Iran on the future of the tattered nuclear deal, said Monday it was not even sure if Tehran wanted to come back into compliance. “We’ve been engaged in indirect conversations, as you know, for the last couple of months, and it remains unclear whether Iran is willing and prepared to do what it needs to do to come back into compliance,” Secretary of State Antony Blinken told the House Foreign Affairs Committee. “We’re still testing that proposition,” Blinken said. He says he worries that Iran has been moving leapfrog ahead with its dream to get a nuclear weapon and while he blames the US withdrawal from the 2015 accord, the reality is that Iran was still going to get a nuclear weapon under the old deal. < IMO the West is insane to do anything which allows Iran to get weapons grade uranium. This is a country that is sitting on hundreds of years of natural gas reserves, so it does not need nuclear power plants.

It was merger Monday in the oil industry. Market watch reported that shares of Contango Oil & Gas Company (NYSE:MCF) +4.27% rallied 5.0% in premarket trading Tuesday after the oil and gas company announced an agreement to combine with KKR & Co (NYSE:KKR), -2.29% subsidiary Independence Energy LLC in a stock deal that values the combined company at about $4.8 billion.

KKR shares gained 1.2% ahead off the open. Under terms of the deal, Independence will merge with an operating subsidiary of a new parent company, which will become publicly traded, and Contango will become a wholly-owned subsidiary of that operating company. The deal is expected to be “highly accretive” to financials, including adding about 15% to Contango’s cash flow per share in 2021 and adding 50% to 2022 cash flow per share. Synergies are estimated to be more than $20.0 million. KKR Energy Real Assets head David Rockecharlie will be chief executive of the combined company, and Contango Chairman John Goff will be chairman of the combined company. Contango’s stock has soared 145.4% year to date through Monday, while KKR shares have climbed 33.7% and the S&P 500 SPX has advanced 12.5%.