Energy Prospectus

Opening Prices:
> WTI is down $1.11 to $72.02/Bbl, and Brent is down $1.03 to $73.74/Bbl.
> Natural gas is down 3.0c to $3.630/MMBtu.

My take is that oil traders are still trying to figure out the impact of yesterday's news of an OPEC+ compromise with UAE. IMO it is a timing difference that does not change the fact that the global oil market will soon need every barrel the cartel can produce.

AEGIS Notes
Crude oil

West Texas Intermediate fell to $72/Bbl Thursday morning following a rise in gasoline and diesel stocks last week, and the market continues to digest an OPEC+ compromise
The EIA reported a decline in oil stocks yesterday, but both gasoline and diesel stocks rose. EIA also reported an increase in U.S. oil production.
The UAE and Saudi Arabia are nearing a compromise that could give the Emirates a more generous output limit next year and allow the whole OPEC+ group to pump more oil in the coming months (Bloomberg)

Talks between the UAE and Saudi Arabia are still ongoing and would additionally need support from the broader OPEC+ group
The oil markets seemed to initially perceive a compromise as slightly bearish as the price has come down since the announcement
However, continued coordination to manage the additional supply from OPEC+ should be supportive for the market, considering the alternative could be a breakdown and a pump at will scenario < My Take is that traders don't like "unknowns", so many of them closed their long positions until details of the deal are known. If UAE won't get to increase production until 2022, I expect a short covering rally to push WTI back to $75.

An air travel recovery in Asia will take years (Bloomberg) < Sounds like a wild ass guess to me.
Asian air travel may take another three years to recover fully from the pandemic, lagging behind other regions
It will take until 2024 for international air travel to reach pre-Covid levels in the region, according to the International Air Transport Association

Natural Gas

Today’s meeting between Biden, Merkel to shed light on Nord Stream 2 (NS2) fate
The talks in Washington will likely address the pipeline, with the U.S. expected to try and shield Ukraine from the loss of transit fees from the pipeline
European natural gas inventory levels are at their lowest seasonal level in over a decade, highlighting the importance of the incremental gas that would come through the pipeline
The prompt-month TTF ngas contract is trading near a historical high of $12.05, nearly 6x what the benchmark was trading at last July

The EIA is expected to report a 46-Bcf injection for the week ending July 9, which would be less than the five-year average build of 54-Bcf during the corresponding week
Analysts estimates ranged from a build of 40 Bcf to 50 Bcf
A build within this range would bring total stocks near 2.620 Tcf and the deficit to the five-year average near 198 Bcf
The current end-of-season storage number settled at 3.63 Tcf on ICE < This will keep natural gas and NGL prices well over $3.00 at least to April 2022.

By Julian Lee based in London
(Bloomberg) --
Goldman Sachs says an OPEC+ output deal would add another bullish factor to crude markets by removing
the risk of a price war. Citi sees a deal coming too late to alter the balance of the crude market in August.

Goldman analysts including Damien Courvalin and Jeff Currie
** An expected OPEC+ supply agreement would be bullish, helping
bridge divide between Saudi Arabia and the UAE, and removing
low-probability tail risks of a price war
** Bank sees 3 other bullish catalysts and maintains summer
Brent forecast at $80/bbl and $75/bbl for 2022
*** Shale earnings season may reaffirm returning cash to
shareholders over production growth
*** Progress on restoring Iran nuclear deal has stalled, setting
back the potential ramp up of exports
*** Consensus expectations for global production outside of
North America and core-OPEC remain too optimistic

Citigroup analysts including Francesco Martoccia and Ed Morse
** Oil market is expected to be tight in the near-term and
should push Brent into the mid-$80s, despite any compromise
supply deal between the UAE and OPEC+
** An agreement now wouldn’t tip the market balance through the
end of August, as most deliveries are already locked in and
unlikely to reach their final destination any time soon
** Current price strength could result in future weakness as
U.S. shale companies show the first signs of recovery

FGE note
** China’s crude imports may rise to 10m-10.3m b/d in 3Q, but
upside will be limited by high prices and strong backwardation
** Inflows were 9.8m b/d in June, up from a 5-month low of 9.6m
in May
** Imports likely to rise above 10.5m b/d in 4Q, driven by new
refineries and need to replenish inventories after 5-6 months of
drawdowns

BloombergNEF oil analyst Wayne Tan
** Asian road traffic remains on a two-track recovery, with
congestion rising in Singapore and India, while Kuala Lumpur,
Bangkok and Jakarta remain steady below normal levels as
Covid-19 cases continue to rise
** Road congestion across several European cities declined, as
the region struggles to break free of Covid-19 restrictions,
with delta variant cases rising
** Traffic in several U.S. cities has increased, as summer
travel boom begins and the vaccination rate is increasing. In
Latin America, measures to contain Covid-19 continue to hit road
use

Transport & Environment note
** EU’s proposed FuelEU Maritime initiative is likely to lead to
LNG, a fossil fuel, providing a large chunk of the energy used
in EU-related shipping, offering minimal CO2 emissions
reductions and releasing methane
** LNG could account for 19% of total energy used in EU-related
shipping in 2030 and 35% by 2035
** Demand for waste-based biodiesel as a marine fuel seen at 5%
of energy share in 2025, reaching as much as 20% in 2035

BloomberNEF analyst Tai Liu
** Lackluster Bakken production recovery is lifting the region’s
oil prices above those for Permian crude in west Texas, where a
solid revival in output is weighing on values
** Permian well completions are back at 84% and rig count at 59%
of pre-pandemic levels, compared with 58% and 32% in the Bakken
** Permian oil production will increase by 580k b/d between
mid-2021 and year-end 2022, with Bakken output declining by 214k
b/d, widening the price differential between the regions

Closing Prices:
> WTI prompt month (AUG 21) was down $1.48 on the day, to settle at $71.65/Bbl.
> NG prompt month (AUG 21) was down $0.046 on the day, to settle at $3.614/MMBtu.

This week's dip in the oil price is all related to the uncertainty created by OPEC+'s feud with UAE. Nothing has really changed. The global oil market is tight and going to get a lot tighter this quarter.