Energy Prospectus

Opening Prices:
> WTI is up 44c to $68.59/Bbl, and Brent is up 37c to $70.75/Bbl. < The pull back is the price of oil is all because of the FEAR of the Covid Delta Variant and the potential for prolonged travel restrictions. FEAR based pullbacks seldom last. Demand for oil exceeds supply and OECD inventories of oil based products are too low and they are still falling.
> Natural gas is down 0.3c to $4.155/MMBtu.

AEGIS Notes
Oil

Oil prices have been under heavy selling pressure amid a coronavirus resurgence that is causing governments to curb travel
China’s government has imposed new restrictions on movement to fight against the highly contagious delta variant
US oil inventories surprised analysts who were expecting a withdrawal on Wednesday; adding to the downward price pressure

China Impact:
Flights in China have recently plummeted by a third (Bloomberg)
Departures from 20 of the biggest Chinese airports have fallen to just 44% of the pre-pandemic level as of August 4
China’s twelfth largest airport in Nanjing, the center of the outbreak, has canceled all of its flights since the city went into lockdown on July 23
The new wave of Covid-19 outbreaks are also impacting road traffic
The government has restricted public transport and taxi services in 144 of the worst-hit areas nationwide

US crude oil stocks unexpectedly increased last week by 3.63 MMBbl, according to the EIA data released on Wednesday < Due primarily to a rise in net imports from 4,018,000 bpd to 4,528,000 bpd per EIA's weekly report. Days of Supply for crude oil, gasoline and jet fuel are now all well below 30 days of supply.
A decline in gasoline stockpiles gave bulls something to cheer, falling 5.3 MMBbl compared to an estimated draw of 1.5 MMBbl from the Bloomberg survey

Natural Gas

Texas Eastern Transmission Co. ends capacity restriction on its 30” line
Flows through the Danville compressor are up by 300 MMcf/d, and Northeast to Southeast capacity will increase by 500 MMcf/d
Cash prices at Eastern Gas South (formerly Dom. South) have posted a strong rebound since the announcement on July 29, rising 46c to $3.13
The increased flows bode well for producers exposed to northeast gas basis but may pressure prices at Henry Hub

The EIA is expected to report a 17-Bcf injection for the week ending July 30, which would be less than the 32-Bcf build in the corresponding week of last year
Analysts estimates ranged from a build of 11 Bcf to 24 Bcf
A build within this range would bring the deficit to the five-year average near 181 Bcf
The current end-of-season storage number settled at 3.54 Tcf on ICE

Closing Prices:
> WTI prompt month (SEP 21) was up $0.94 on the day, to settle at $69.09/Bbl.
> In contrast, NG prompt month (SEP 21) was down $0.018 on the day, to settle at $4.140/MMBtu.

MY TAKE: The FEAR of the Delta Variant is the only thing keeping a lid on oil prices. In my opinion, we cannot keep putting gathering and movement restrictions on our society no matter how many new cases are confirmed. Critical supply chains (food, clothing, building materials and energy) will be "broken" which can do a lot more harm than the virus. Not to mention the severe damage being done to middle class working families.

We live in a world with lots of illness and all of us are going to die from something. As long as our healthcare system can deal with those who get sick it is not a "pandemic" IMO. Plus, masks and travel restrictions didn't seem to do any good during 2020. It was the widespread available vaccines that significantly lowered the death rate. Susan & I got the vaccine, but I can understand why some people are not willing to have untested drugs injected into their bodies. Freedom of choice has consequences. Freedom to wear a mask for the rest of your life is also a choice everyone should have.

In Texas ~9% of the population has been confirmed to have had Covid-19. Many more people probably had it and got over it without being confirmed. Less than 2% of the confirmed cases resulted in death. 52,300 Texans have died from Covid-19; 0.174% of the state's population. Only 7.6% of the Covid related deaths in Texas (most "with Covid", not "because of Covid") have been people under 40. Less than 0.11% of the deaths have been people under 20 and most (if not all) of the younger people had other serious health problems.

FEAR is a powerful human emotion, but eventually human's adapt to the risks in nature. We learned not to swim in shark infested waters. We learned that smoking a pack of cigarettes per day was a bad choice. We can learn to live with another virus.

Why is this important? Our standard of living and our health depend on a dependable supply of energy and most of it (for the rest of our lives) will come from oil, gas and coal. Without oil-based fuels our food supply will be gone quickly. Demand for oil rebounded much faster than most "experts" predicted because our standard of living depends on it. Global demand for all transportation fuels now exceeds pre-pandemic levels except for jet fuel and it is also coming back strong. Demand for oil exceeds supply TODAY and within 18 months demand for oil based products will exceed global capacity. The last time that happened was 2008 and WTI went over $145/bbl.

US inventories of crude and most refined products are currently below the 5-year average for this time of year. Per yesterday's EIA report we only have 24.3 days of gasoline supply in the US.