Energy Prospectus

Opening Prices:
> WTI is down 81c to $73.14/Bbl, and Brent is down 74c to $74.67/Bbl.
The Trend is UP. Buyers will remain in Control above $72.50. A change in Trend requires a Friday close below the two-week low of $65.20, reached during the July 19 selloff.

> Natural gas is up 8.8c to $4.002/MMBtu.
The Trend is UP; however, thanks to the 14.5c selloff on Friday, July 30, sellers have re-gained Control below $4.02. A change in Trend requires a Friday close below $3.68.

AEGIS Notes:
Crude Oil

Oil dropped Monday morning after two weeks of gains as the demand recovery continues to be threatened by the delta coronavirus variant
> The virus is muddling the outlook for consumption across the Asia Pacific. China faces a new outbreak, Thailand is about to expand its quasi-lockdown measures. (Bloomberg)
> Despite the virus's persistence, US oil consumption is rushing back much faster from the pandemic slump than first predicted. The Energy Information Administration on Friday pegged May’s demand for US oil products at 20.094 million barrels, or about 7% higher than its original estimate.

The US and Israel promised to respond to a drone attack on a tanker that killed two last week in the Persian Gulf; they blamed Iran (WSJ)
> Israeli Prime Minister Naftali Bennet said that Israel expected the international community to respond, adding, “in any case, we know how to send a message to Iran in our own way.”
> The accusation against Iran comes as the US and Iran are working on restoring the 2015 nuclear accord. Those talks have stalled recently as the US is waiting for Iran to return to the negotiating table, according to to the WSJ.

Natural Gas

Gas prices are up by 9.7c this morning to trade near $4.004, after posting a 13c loss last week
> According to CWG, the total number of population weighted CDDs increased by 5.8 over the weekend
> Last weeks price action was largely dependent on weather models, as the sell-off coincided with a loss in CDDs, and thereby forecasted gas demand

Enbridge announced that federal pipeline safety regulators have given the company the go-ahead to return the pipeline to full pressure
> TETCO declared a force majeure on May 28, when the U.S. Pipeline and Hazardous Material Safety Administration (PHMSA) required the company to implement a 20% pressure restriction on two of three lines that make up its 30-inch system between its Kosciusko, Mississippi, and Uniontown, Pennsylvania, compressor stations effective June 1
> The reduction in pressure caused flows from the Appalachia region to the Gulf Coast to fall to 1.2 Bcf/d in June, and 1.4 Bcf/d in July, from 1.9 Bcf/d before the order
> The increased pressure will likely drag henry hub prices lower as the additional supply loosens the market; however, it bodes well for producers with gas exposed to northeast basis prices (AR, EQT and RRC). < See my notes about EQT under the Sweet 16 tab.

On July 30, Reuters reported Asian spot prices for LNG rose this week as buyers sought to secure the fuel used for power generation amid a global supply crunch and high temperatures across the region. The average LNG price for January delivery into Northeast Asia was estimated at about $15.60 MMBtu, up $1.15 from the previous week, industry sources said. Except for a price peak in January, this is the highest level since 2014, as a warmer than usual summer drives up demand for electricity to power air-conditioners.

MY TAKE: US utilities will be in a "Bidding War" with the LNG exporters for natural gas supplies through the 2021-2022 winter.

OilPrice.com: Natural gas deficit causes prices to soar
Natural gas prices are rising across Europe and Asia due to tighter supply of the commodity, lower production in Europe, and lower exports from Russia, the Financial Times reports, noting the supply crunch may intensify in the coming weeks. In Europe, the report notes, prices for natural gas have hit 40 euros per mWh for the first time ever, with UK gas prices at the highest in 16 years. This is equal to approximately $14 per million British thermal units. In Asia, gas prices have hit $15 per mmBtu.

Phil Flynn

Bloomberg reported that Russia increased oil production in July for the first time in three months after more generous quotas were extended to the entire OPEC+ alliance. Producers pumped 44.24 million tons of crude and condensate last month, according to preliminary data from the Energy Ministry’s CDU-TEK unit. That’s about 10.46 million barrels a day, or 0.3% higher than in June.

The Bloomberg monthly OPEC oil output survey showed that several nations out of 13 in the cartel were unable to increase production in July, despite higher quotas and prices. Overall OPEC output did increase thanks to higher Saudi output.

The Russian and OPEC compliance numbers seem to suggest that the OPEC plus bond is closer than ever. Oh sure, it’s easy to be chummy when oil prices are high and things are going your way, still, the compliance numbers suggest that OPEC plus is going to be a force in the oil market for some time to come.

The oil market is still uncertain about the impact of the Delta variant of the COVID-19. While there is some evidence of some weakness in the Chinese data, most of the data suggest strong demand and an oil market that is going to be undersupplied.

Natural gas is given some support on weather forecasts that showed the heat will return after a brief cool-off. Andrew Weissman of EBW analytics says despite a bullish injection, September natural gas—now the front-month—posted a net loss last week. Market drivers included: (i) progress in returning to full service on Tetco; and (ii) very mild weather to start August, which moved prices at Henry Hub below $3.90 on Friday.

Natural gas futures have held up better than expected given the severity of the early August cool spell. With only a few days of very mild weather left, however, and models predicting much hotter weather later this week, futures could move back up in a few days.

Closing Prices:
> WTI prompt month (SEP 21) was down $2.69 on the day, to settle at $71.26/Bbl.
> In contrast, NG prompt month (SEP 21) was up $0.021 on the day, to settle at $3.935/MMBtu.