Energy Prospectus

Opening Prices:
> WTI is up $1.08 to $66.72/Bbl, and Brent is up $1.20 to $69.95/Bbl.
> Natural gas is up 0.1c to $3.946/MMBtu.

AEGIS Notes
Oil

West Texas Intermediate was up about $1/Bbl Tuesday morning following a more than 5% jump Monday
> The delta variant continues to sweep through multiple nations, but China reportedly has rapidly brought local virus cases down to zero following its latest outbreak

The U.S. will hold its largest sale of oil from strategic reserves since 2014 (Bloomberg)
> The Department of Energy plans to auction off 20 MMBbl
> Barrels from the auction will be delivered during the fourth quarter
> The auction comes at a time when a resurgent virus clouds the outlook for oil demand

Mexico: A fire at a Pemex offshore platform reduced output for the state-owned producer by 421 MBbl/d from 125 wells (Argus)
> The fire broke out during scheduled maintenance at the platform on Sunday
> The platform is part of Pemex’s main shallow-water production complex Ku Maloob-Zaap that represented 40.9% of the total 1.77 MMBbl/d Mexican crude output in June
> Crude grades likely to benefit from the temporary decrease in production are Canadian heavy sours, Western Canadian Select (WCS), and Cold Lake destined for the U.S. Gulf coast, according to Argus.

Natural Gas

Gas is trading near a one-week high of $3.946
> The gas-weighted cooling degree day count held at 342, as scorching weather in the U.S. West offset cooler temperatures on the U.S. East Coast
> Tropical Storm Henri also has wreaked havoc on power demand as nearly 125k electricity customers lost power from New Jersey to Maine

Bakken associated gas nears its all-time highs (Platts)
> Production is close to the 3.08 Bcf/d averaged during 1Q2020 before the pandemic.
> Gathering and processing facility additions, and higher gas-to-oil ratios have allowed associated gas to return quicker than crude
> The percentage of gas flared has decreased from around 15% before the pandemic to now around 8%

Pipeline maintenance to weigh on U.S. LNG feedgas deliveries over the next six weeks
> The export arbs have widened as global benchmark prices continue to hover near record levels, which has encouraged full utilization
> Scheduled work at Cheniere Energy’s Creole Trail Pipeline that is supposed to begin today will limit capacity from 1 Bcf/d down to 0.6 Bcf/d
> Work will also take place on the Pleasant Valley compressor station from Sept. 20- Sept. 28, which will reduce receipts on the Cove Point
MY TAKE: If LNG exports stay near capacity (now expected all winter) demand for U.S. natural gas will be at record levels through the winter.

BofA Equity Research:
"Liquefied Natural Gas (LNG) prices have surged recently amid two conditions that have had staying power. Asian LNG demand has been very strong, putting pressure on European inventories, driving Europe's gas supply to the lowest level in 5 years. Utilities switching from natural gas back to coal for power generation is being limited by high carbon prices while Russia has so far failed to increase exports as it aims to secure supply agreements for the Nord Stream 2 pipeline. This dynamic has positive read-throughs for upstream oil & gas companies."

On Monday, US FDA granted full approval to Pfizer Inc/BioNTech COVID-19 vaccine raising hopes that the immunization drive will gain traction again. Also, China saw no new locally transmitted COVID-19 cases Monday, the first time since July, amid Beijing's zero-tolerance stance and tough anti-virus measures across the country. Meantime, Indian refiners' crude throughput in July bounced to its highest in three months as fuel demand rebounded.

Closing Prices:
> WTI prompt month (OCT 21) was up $1.90 on the day, to settle at $67.54/Bbl.
> NG prompt month (SEP 21) was down $0.049 on the day, to settle at $3.896/MMBtu.

WTI crude futures rose 3% to above $67.5 a barrel on Tuesday, building on Monday’s 5.6% jump on a bullish demand outlook and supply constrain after Mexico suffered a large production outage due to a fire on an oil platform. On Monday, US FDA granted full approval to Pfizer Inc/BioNTech COVID-19 vaccine raising hopes that the immunization drive will gain traction again and China saw no new locally transmitted COVID-19 cases for the first time since July. Meantime, Indian refiners' crude throughput in July bounced to its highest in three months as fuel demand rebounded.