Energy Prospectus

Opening Prices
> WTI is up unchanged at $74.05/Bbl, and Brent is down 12c to $76.06/Bbl.
AEGIS note: The Trend remains UP and Buyers are in Control above $72.50. Only a weekly close below $69.75 changes the UP Trend.
> Natural gas is up 5.8c to $3.554/MMBtu.
AEGIS note: The Trend is UP. Buyers are in Control above $3.32. A change in Trend requires a Friday close below $3.13.

AEGIS Notes
Crude Oil

Iran escalates negotiation tensions by refusing to give nuclear site images to International Atomic Energy Agency
Iran had submitted to a three-month monitoring pact in February, which allowed limited monitoring on its nuclear activities, serving as a stop-gap measure that gave negotiators time to reach an agreement
If Iran is unwilling to extend the pact then it will likely complicate the negotiations, and delay any meaningful return of Iranian crude
According to Reuters, on Friday, U.S. Secretary of State Anthony Blinken said “any failure by Tehran to extend the monitoring agreement would be a serious concern for broader negotiations”

Baker Hughes’ oil-directed drilling rig count decreased by one, to bring the total oil rig count to 372
The report stated the year-on-year figures reflect a 184-unit increase in oil rigs
Rigs targeting oil in the Permian Basin fell by 1 to 236

U.S. refining capacity drops 4.5% to 18.13 bbl/d from a record 18.98 million bbl/d a year earlier (EIA)
The drop was the largest since 2012 and the first annual decline since 2018 when capacity was reduced by 18,530
A combined five refineries, totaling 801,146 bbl/d of capacity were permanently closed following a 1.3 million bbl/d drop in gasoline demand caused by the pandemic

Recovery in European jet fuel demand won’t fully return to pre-COVID-19 levels until 2030, according to FGE
FGE sees jet fuel demand in Europe reaching 75% of 2018-2019 levels at the end of 2022
The consultancy estimates that European refining capacity will shrink by 700,000 bbl/d due to the closures announced for 2020 and 2021

Western Canadian Select settled at $59.28/bbl on Friday, the highest since hitting $59.74/bbl in November 2014 (Argus)
Synthetic Canadian crude output fell for three consecutive months ending in March, but producers still combined for 1.24mn bbl/d in Q1, the highest quarterly output on record according to Alberta Energy Regulator

AEGIS Notes
Natural Gas

The prompt-month Henry Hub contract (July’21) is trading near $3.55 as it heads for expiry
The contract has rallied over 56c in June, as record-breaking temperatures in the U.S. West and a heatwave in Texas have helped expose the market tightness
Temperatures in major cities in the U.S. west have seen record-breaking temperatures, causing a pull on gas for natural-gas fired power generation. Hydro and wind power have also underperformed.

The winter 2021-2022 strip has also rallied 46c during this period < Extremely bullish for all of our gassers as they can now lock in good gas price thru 2022 with hedges.

Feed gas flows to LNG facilities have hovered above 11 Bcf/d for the last four days, its highest sustained level since the beginning of the month
Feed gas flows have under-performed what the current export arbitrage implies as several trains have been brought down for maintenance or dealt with compressor outages
Freeport LNG had five compressor outages during the month of June, and the return of one of its trains last Thursday is what helped U.S. feed gas flows eclipse 11 Bcf/d
The JKM price is at a seasonal eight-year high. According to Bloomberg, the prompt-month contract is at around $12.755
The TTF prompt-month contract is trading around $11.35

Noon Update
WTI crude fell more than 1% to around $73 a barrel on Monday morning, having touched $74.45 a fresh high since October 2018 earlier in the session as a spike in coronavirus cases in Asia and the rapid spread of the new delta variant of COVID-19 in some European countries, resurfaced concerns over fuel demand recovery. Meantime, investors await the outcome of the OPEC+ meeting this week amid plans of a further gradual increase of oil output from August. Elsewhere, the US conducted airstrikes on Sunday against Iranian-backed militia groups blamed for drone attacks on American facilities in Iraq, likely delaying any further discussion about easing the sanctions. The oil market is still up more than 50% this year, amid low inventories and as investors are upbeat about fuel demand recovery this summer, with vaccination programs in Europe and the US allowing more people to travel.

The Energy Report: Waiting On The World
By Phil Flynn Jun 28, 2021 09:57AM ET

Oil prices are playing the waiting game as the market awaits the decision by OPEC plus Russia on how much supply they will add to the market and at the same time question whether or not Iranian barrels will ever come back to the market.

Behind the scenes, there was a little bit of drama as the Biden Administration yesterday ordered attacks on Iranian militias by the Iraqi Syria border. This attack, of course, could further delay the already much delayed Iranian nuclear agreement. Iran is refusing to allow inspectors at their nuclear facilities as they are being told that the agreement had expired. That, of course, is going to make it much harder for negotiators to come to a final resolution.

Yet all this drama overshadows the fact that global inventories are falling at a dramatic pace. Take a look, for example, at the private forecasters, Genscape, who, in their weekly reports showed another substantial 1.577-million-barrel drawdown in the Cushing OK delivery point.

This is the delivery point that a year ago they were afraid was going to overflow and now they are afraid that the draws in the tanks could put pushing Oklahoma below their minimum operating levels in just a few weeks. This comes at a time where U.S. oil production is stagnating shale, producers are not spending money, and investors are turning away from traditional fossil fuel investment.

John Kemp at Reuters points out that while U.S oil prices have climbed to the highest for roughly three years, the number of rigs drilling for oil is still less than half what it was the last time prices were at this level.

That means that the shale cavalry is not going to come to the rescue of the global market and alleviate a potential shortage in the coming months and years. It also means that the US is going to be more dependent on OPEC and Russia for its oil supplies in its daily needs.

Your gasoline prices are still going up; in fact we’re hitting the highest levels of the summer. AAA puts the price of regular unleaded at a national average of 3.099 a gallon. The reopening of the economy is helping drive gasoline prices, but also as we predicted, policies by the Biden administration are making the situation worse.

While the Biden administration tries to show empathy for rising gasoline prices by demanding that there be no gasoline tax to pay for his infrastructure plan, at the same time his policies surrounding pipeline drilling moratorium commitments to the Paris climate accord, people, all will result in higher fuel prices for Americans.

There was also going to be a big impact on Americans when it comes to their heating bills as the drilling moratorium is creating a very tight supply of natural gas. Now you add in the impact of a hot summer record exports of liquefied natural gas and you have a situation where this winter's heating bills are going to be substantially higher than they were a year ago.

The cost for electricity is also going to rise. I don’t think that anybody in the administration truly thought out what their rush to electronic vehicles would do to the US energy infrastructure, which is not going to be prepared to handle an influx of a lot of electric vehicles without a lot of investment.

Regarding US electric infrastructure, the Biden administration says they want to make the power grid more renewable but that also means less reliable. It also means that we’re going to see the cost for electricity rise and it is going to be a challenge to charge millions and millions of electric cars.

The best way really to trade energy right now is probably to buy brakes across the board as we expect another bullish drawdown in crude oil supplies this week and we expect to see the demand for the product soar.

We’re facing it in the environment where we’re going to see tighter supplies and higher demand unless there's some breakthrough with Iranian nuclear talks or unless there’s some type of other event, the odds are still very high that we’re going to see a significant move on oil prices to the upside we do have to acknowledge though that the 4th of July holiday sometimes gives us a short term peak, but it will in no way change the overall bullish fundamentals underlying this market.

This bull market has been built by years of underinvestment in the oil and gas sector; it’s being built by the reluctance to invest more money in the oil and gas sector because of the concerns about climate change. We’re going to start to see the real cost of the energy transition and it’s going to be coming out of your pocket.

The "big guy" will cost little people dearly with his demented energy policies.

As Merle Haggard would sing, "Are the good times really over for good"?

Closing Prices:
> WTI prompt month (AUG 21) was down $1.14 on the day, to settle at $72.91/Bbl. < Waiting on the OPEC+ decision.
> NG prompt month (JUL 21) was up $0.121 on the day, to settle at $3.617/MMBtu. < July '21 gas rallies 12.1c during final trading day to expire at $3.61. AUG21 is now the front month gas contract.