Energy Prospectus

Oil sunk to a three-week low on Monday morning as the COVID resurgence threatens the outlook for fuel demand. Futures began losing ground Sunday night at the futures market open, as the market digested news of renewed travel restrictions in China.
Opening Prices:
> WTI is down $2.88 to $65.40/Bbl, and Brent is down $2.80 to $67.90/Bbl.
> Natural gas is down 3.4c to $4.106/MMBtu.

AEGIS Notes
Oil

Oil sunk to a three-week low on Monday morning as the COVID resurgence threatens the outlook for fuel demand
Goldman Sachs downgraded its economic growth forecast for China due to the virus flare-up
Oil’s selloff has weakened the near-term Brent time-spread

Goldman economist cut their quarter-on-quarter growth projections of GDP in 3Q and also lowered their full 2021 GDP forecast to 8.3% from 8.6% (Bloomberg)
The new forecast assumes Chinese will bring the outbreak under control in about a month
Goldman cut their estimate for annualized growth in the current quarter to 2.3% from 5.8% previously. They raised their forecast for fourth-quarter GDP growth to 8.5% quarter-on-quarter from the previous 5.8%
A 4Q rebound is expected to realize after the virus curbs are lifted as well as supportive monetary and fiscal policy

Demand concerns have weakened Brent crude’s market structure
The amount of backwardation in Brent’s prompt spread has narrowed to $0.33/Bbl
That’s the smallest spread since May and compares with 92c at the end of July, according to Bloomberg

Natural Gas

Platt’s JKM benchmark price eclipses $16 for the first time in “Northern summer” (June, July, and August) since 2013
> Traders in Asia have been vying for the same cargoes as Europe, which has caused a bidding war of sorts.
> European gas inventories are at their lowest level ever for this time of year, which has caused the TTF benchmark to trade above $14/MMBtu
> The Asian gas markets have been tight, with inventory levels still below their five-year average. According to Platts, “There’s hot weather, a typhoon, too many variables… we have to ensure that there are sufficient gas supplies downstream in case the weather turns hotter.”

The prompt-month Henry Hub contract (Sep ’21) is down by 3.4c to around $4.10
> Flows to LNG export facilities are near their two-month low of 9.687 Bcf/d, despite a wide-open export arbitrage
> The TTF-Henry Hub spread is near a historical high of $10.25
> The pop-weighted U.S. CDD count increased by 0.9 increase over the weekend, with warmer weather patterns expected to emerge in Texas, U.S. Midwest during days 11-15
> ERCOT forecasts that Texas power demand will reach its highest point during this week’s heat wave

Closing Prices:
> WTI prompt month (SEP 21) was down $1.80 on the day, to settle at $66.48/Bbl. < WTI did bounce off the lows and moved up a dollar in afternoon trading.
> Also, NG prompt month (SEP 21) was down $0.080 on the day, to settle at $4.060/MMBtu. < My take is that ngas was down just because oil was down. Just remember that Covid related travel restrictions have no impact on natural gas demand and may actually increase power and space heating & cooling demand.


"WTI crude futures plunged more than 4% to a near 3-week low of $65.3 a barrel on Monday morning, extending last week's slump of more than 8%, amid the rising US dollar and mounting fears that the rapid spread of the Delta variant globally may cloud the demand outlook. In China, there were 125 new virus cases on Friday, the highest since mid-January, with authorities reportedly launching new restrictions, including flight cancellations, warnings by 46 cities against travel, and limits on public transport and taxi services in 144 of the worst-hit areas. Meantime, daily new virus cases in the US have climbed to a six-month high, with more than 100,000 infections reported nationwide. Capping some losses, cross-border hostilities between Israel and Iran accelerated after both sides engaged in rocket exchange after a tanker off the coast of Oman was attacked last week." - Trading Economics