Energy Prospectus

Opening Prices:
> WTI is up 23c to $70.53/Bbl, and Brent is up 27c to $72.50/Bbl.
> Natural gas is down 4.1c to $3.918/MMBtu.e

AEGIS Notes
Oil

West Texas Intermediate rose for the third consecutive day Thursday morning following the selloff earlier in the week
> Wednesday’s oil rally was the largest gain in three months as traders have almost recouped all of Monday’s 7.5% decline
> Oil field services company Baker Hughes said shale drilling in North America is going to slow in the second half of this year

Oil prices are high enough to encourage drillers to add rigs and increase supply, but investors have called on public operators to instead distribute profits to shareholders (Bloomberg)
> The North American rig count will climb by about 50 through the end of 2021, according to Baker Hughes
> The rig count has been moving higher since hitting a low of 278 in June of last year. The rig count stood at 634 last week < Compares to ~1100 in Q1 2019.
> Rig activity has rebounded from the lows of last year, but growth has been led by private operators, a trend that is set to continue in 2022, according to Baker Hughes

Platts, a price reporting agency, has again opened a consultation of the future of its Dated Brent crude benchmark, this time in a partnership with ICE (Argus)
The joint published white paper, Platts and ICE laid out two proposals that might solve the problem of dwindling physical volumes underpinning Dated Brent
One solution involves adding US crude WTI into the basket of North Sea grades used to mark Dated Brent

Natural Gas

The EIA is expected to report a 43-Bcf injection for the week ending July 16, which would be more than the 36-Bcf five-year average build for the corresponding week
> Analysts estimates ranged from a build of 36 Bcf to 51 Bcf
> A build within this range would bring total stocks near 2.672 Tcf, and the deficit to the five-year would contract to 182
> The current end-of-season storage number is being offered on ICE is around 3.63 Tcf < The 5-year average amount of gas in storage at the beginning of winter is 3,735 Bcf and the U.S. now consumes a lot more gas than it did five years ago and LNG exports were zero five years ago. The bidding war between the utilities and the LNG exporters could produce some very high gas prices within a few months.

Baker Hughes sees oil, gas demand rising through the end of 2022
> The company noted that natural gas fundamentals have been as strong, if not stronger than oil, as outages and strong demand in Asia, Latin America, and Europe have pushed LNG prices to their highest levels since 2015
> Based on a strong pace of current growth for natural gas and increased demand for cleaner energy sources, "we maintain our positive long-term outlook for natural gas and LNG," said Baker Hughes CEO Lorenzo Simonelli, echoing comments from Halliburton CEO Jeff Miller during the company's 2Q earnings call

Note from my pals at Stifel 7-22-2021

Energy Infrastructure - LNG 2Q21 Preview: Speedy Recovery Has Longer-Term Implications - Benjamin J. Nolan
As global economies open back up, LNG demand has increased to keep pace. At the same time, there have been supply constraints at several international export projects. As a result, LNG prices are 200%+ higher than 2020 and 100%+ higher than 2019 (pre-pandemic). This has pushed LNG shipping rates higher as netbacks were better for shipments to Asia, elongating ton-mile demand. However, moderating demand should stop LNG prices from moving higher. Forward curves say as much with JKM around $10/mmbtu in 2022, down from ~$14/mmbtu through the remainder of the year. Higher prices should incentivize additional buying. However, so far, most new off-take contracts are shorter durations and from traders, not utilities, which are harder to finance. Selling LNG downstream is more difficult in the near term, but LNG supply growth should normalize prices. Our top picks are Cheniere (LNG) and Golar (GLNG).

MY TAKE: The fight this winter between LNG exporters and the domestic utilities for gas supply could set up the "Mother of all Bidding Wars". It will take ngas prices of at least $7.00 to make exporting LNG unprofitable and that doesn't count the fact that a cold winter in Asia and/or Europe will make the sky the limit for what consumers are willing to pay for the space heating fuel.