Energy Prospectus

Opening Prices:
> WTI is up 34c to $70.39/Bbl, and Brent is up 43c to $72.65/Bbl.
> Natural gas is up 0.7c to $3.135/MMBtu.

Keep in mind that all of my forecast/valuation models are based on a $65/bbl WTI for all future periods and natural gas prices of $2.80 for Q2, $3.00 for Q3, $3.10 for Q4 and $2.75 for 2022.

AEGIS Notes
Crude Oil

WTI crude settled above $70/Bbl for the first time since October 2018 on Tuesday
Oil prices received a lift from still ongoing Iranian nuclear talks and a bullish API crude oil inventory report late yesterday
> Iran said a deal to end sanctions on its oil sector remained elusive (Bloomberg) < My take is that Team Biden now realizes that Iran is not going to stop pursuing weapons grade uranium no matter what the West agrees to. They have no fear of this administration.

The American Petroleum Institute (API) on Tuesday reported a draw oil stocks of 2.108 MMBbl for the week ended June 4 < EIA reported a much larger draw (-5.2 MMBbl) this morning.

The WTI-Brent spread gained 10c yesterday to settle at -$2.35/Bbl on Tuesday, the narrowest close since late November 2020
“This is because the WTI Cushing complex is supported by a host of bullish localized fundamentals,” PVM analyst Stephen Brennock said in a report (Bloomberg)
Brennock expects the relatively tight differential to be a prominent theme over the coming months

Iran intends a quick increase in oil output once sanctions are lifted, a senior oil ministry official said on Wednesday (Reuters)
A member of Iran’s national oil company (NIOC) said oil production will be restored within a month if sanctions are lifted
“Careful planning has been done to restore oil output to pre-sanctions levels in intervals of one week, one month, and three months,” said Farokh Alikhani, production manager of the NIOC

Natural Gas

The EIA revised several key natural gas forecasts in its June STEO report, released on Tuesday
The agency revised its U.S. dry gas production upward in 2021 and 2022, by 1.12 Bcf/d and 0.81 Bcf/d to 92.18 Bcf/d and 93.93 Bcf/d, respectively
The EIA expects that U.S. consumption of natural gas will average 82.9 Bcf/d in 2021, down 0.5% from 2020, which they attribute to gas to coal switching due to higher natural gas prices. < Note that the U.S. is currently exporting close to 18 Bcfpd, which is not included in the consumption figure above.

Henry Hub prices reach an 11-week high as warmer weather forecasts and strong LNG forecasted for summer
> Weather forecasts show that the U.S. West will see abnormally hot temperatures over the next few weeks, and much of the West is dealing with a drought that has limited hydropower, further supporting natural gas prices
> LNG exports this summer should hover near record highs as the exports arbs are at their widest level since early 2018

Closing Prices:
> WTI prompt month (JUL 21) was down $0.09 on the day, to settle at $69.96/Bbl.
> In contrast, NG prompt month (JUL 21) was up $0.001 on the day, to settle at $3.129/MMBtu.

My take on WTI is that $70 is a strong resistance level that is slightly above the top of the rising channel that I have been showing you in my weekly podcasts. A lot of the "traders" have been and will continue to short oil at the top of the channel. It will take multiple closes above $70 for WTI to break out to higher levels, but eventually it will. Why?, because U.S. and OECD oil inventories are dropping fast and are probably already below 30 days of consumption. As I have said in many of my podcasts, when OECD inventories go below 28 days of supply, triple digit oil prices are likely to return.

Natural gas is all about the weather which is going to ramp up demand for power generation and drive U.S. natural gas inventories way below the 5-year average in June. Go here https://weather.com/maps/tendayforecast and you will see lots of red and orange on the forecast maps. California may soon be looking at regional power outages for lack of gas supply. Household utility bills and their gasoline prices could be going much higher if that state doesn't get real about energy policy. I thank God daily that he lead me to Texas.

From Celsius Energy: "As of 5:00 PM ET on June 9, the population-weighted nationwide temperature is 84.1°F which is 0.8°F warmer than yesterday and 4.9°F warmer than the historical average. Accumulated Natural Gas-Weighted Degree Days (GWDDs) through 5:00 PM EDT tally 6.8 GWDDs which is 0.3 GWDDs greater than yesterday through the same time and 2.3 GWDDs greater than average. This suggests an above-average contribution of temperature to natural gas demand."

For those of you investing in natural gas producers, this is website has a lot of really good information. Make it one of your favorites.
https://www.celsiusenergy.net/p/intraday-weather.html

Trading Economics:
"WTI crude futures were trading around $70 a barrel on Wednesday, hovering at levels not seen since October of 2018, amid expectations for strengthening demand as travel is picking up in the US, China and Europe. The US CDC has eased travel recommendations for more than 110 countries. On the supply side, prospects of further oil supply from Iran started to fade after the US Secretary of State Antony Blinken said hundreds of sanctions on Tehran likely would remain in place even if the US rejoins the nuclear deal. Meanwhile, the EIA report showed a bigger-than-expected drop of 5.241 million barrels in US crude inventories last week although gasoline stocks surged by 7.046 million, the largest increase since April 2020."