Energy Prospectus

Opening Prices
> WTI is down $1.20 to $69.36/Bbl, and Brent is down 93c to $71.48/Bbl.
> Natural gas is up 9.4c to $4.121/MMBtu.

AEGIS Notes
Oil

West Texas Intermediate fell over 1% Wednesday morning as the coronavirus spread in top oil-consuming countries outweighed another predicted fall in oil inventories
> Virus concerns also offset Mideast geopolitical concerns
> According to the American Petroleum Institute (API), crude oil inventories in the US fell by 879 MBbl for the week ended July 30. Government data is due out at 9:30 AM CST

Geopolitical tensions recently flared in the Persian Gulf, where many of the world’s oil exports are transported
> The British navy said Wednesday that a suspected hijacking of a vessel near Iran has ended (Bloomberg)
> A Panama-flagged Asphalt Princess was briefly boarded by armed men on Tuesday when it was in the Persian Gulf, according to a Gulf government official
> Multiple countries blamed Iran for the hijacking to which Tehran denies
> Both yesterday's hijacking and last week’s drone attack, also blamed on Iran, on an Israeli-operated vessel, come as Iran is trying to reenter the 2015 nuclear accords
MY TAKE: Iran's new president is testing Team Biden.

Permian Basin output to return to pre-pandemic levels by the end of 2022
> According to GlobalData’s latest report, the Permian Basin is producing about 4.6 MMBbl/d currently and is projected to reach over 4.9 MMBbl/ of crude oil production by mid-2022, which surpasses pre-pandemic production of 4.8 MMBbl/d in February 2020
> GlobalData cites improving demand in 1H2021, encouraging production growth and a positive investment outlook as the primary reason production will recover completely in 2022

Natural Gas

Natural gas prices posted their largest daily gain in over two weeks yesterday, with the prompt contract rising 16.2c to $4.10 from Monday’s close
> The weather has been mostly to blame for the run-up in price, as weather forecasts now estimate next week will be the hottest week of the summer
> AEGIS notes that the hot weather has caused many analysts to revise their end-of-season storage estimates lower. However, most forecast end-of-season storage will be somewhere around 3.5 Tcf. Despite higher prices, we would like to point out that the market is still tight, and storage levels face an uphill battle to rise to “healthy levels”, barring a major rise in price, or a fundamental shift in the market
> Additionally, hurricane frequency skews toward August & September, which is important because of the “loosening effect” on balances observed over the past few years. A hurricane has become a net demand event as much of the U.S. LNG infrastructure is located along the USGC, which would lead to larger injections
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The long-range weather forecasts show patterns for an increase in tropical storm activity beginning mid-August.
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Closing Prices:
> WTI prompt month (SEP 21) was down $2.41 on the day, to settle at $68.15/Bbl.
> In contrast, NG prompt month (SEP 21) was up $0.131 on the day, to settle at $4.158/MMBtu.

From Platts: This is very bullish for AR, EQT and RRC that have direct access to these markets. Our other "gassers" (CRK, GDP and SBOW) will also benefit from the coming winter "Bidding War" for gas supply. See what I posted about CRK under the Sweet 16 tab.

At Transco Zone 6 New York, the December-January-February calendar-month average natural gas price has climbed to more than $7/MMBtu recently, up from levels around $5.50 in early April. At Boston-area Algonquin city-gates, the peak-winter calendar-month average has climbed to the mid-$12s/MMBtu recently, gaining about $5.50 or almost 80% since the start of April, S&P Global Platts data shows.

At both locations, the winter forward contracts are priced at their highest for January and February which recently settled in the upper-$7 range at Transco Zone 6 and the $13 to $14 range at Algonquin.

The run up in Northeast winter gas prices over the past several months comes as regional storage inventories appear increasingly ill prepared to handle the upcoming spike in seasonal heating demand.

As of early August, gas storage in the Northeast is estimated at 690 Bcf – about 54 Bcf, or 7%, below the prior five-year average and 128 Bcf, or almost 16%, behind the region's year-ago inventory level, data from S&P Global Platts Analytics shows.

Since the start of May, storage injections in the Northeast have averaged about 3.2 Bcf/d – almost 300 MMcf/d below the prior five-year average. While a recent uptick in the pace of injections has narrowed the region's inventory deficit from over 60 Bcf, the speed of this summer's build will need to accelerate to about 3.4 Bcf/d through early November to reach typical pre-winter inventory levels at over 1 Tcf.
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Demand for US LNG remains HIGH with the Dutch TTF at $14.35/MMBtu and Japan/Korea at $15.34. The Northeast US, Europe and Asia are all looking at gas in storage below where it should be as we are just a few months away from the winter heating season.