Energy Prospectus

Opening Prices
> WTI is down 77c to $67.59/Bbl, and Brent is down 71c to $71.54/Bbl.
> Natural gas is up 5.4c to $3.951/MMBtu.

AEGIS has a webinar today at 2PM. We will be sending the webinar registration link to all EPG members at 11AM CT.

AEGIS Notes
Oil

Crude oil prices fell Thursday morning after the largest three-day rally since March
> WTI has risen nearly 10% since last Friday as U.S. oil inventories shrank, Indian jet fuel demand rebounded, and China’s swift effort to contain the virus brings optimism
> American fuel demand has been strong despite fears that the resurgent virus would temper consumption
> Indians are returning to the air after months of being corralled in their homes during its Covid-19 wave, driving an increase in jet fuel usage (Bloomberg)

Jet fuel has been the hardest hit oil product since the pandemic
> Air travel has climbed sharply, according to STIC Travel

The EIA reported a 2.9 MMBbl decrease in crude oil inventories for the week ended August 20 on Wednesday
> The bulls welcomed a draw in crude oil stocks, but a large withdrawal in gasoline inventories lent more support to prices as the sizable draw came amid the delta variant surge in the U.S.
> Fuel consumption, measured by the amount of gasoline sent to the market, last week rose to the highest level since the end of July (Bloomberg)
> Some analysts were expecting a dip in gasoline demand due to the virus

Natural Gas

Texas Eastern restart helps boost Eastern Gas south prices in August (Platts)
> On August 5, the Pipeline and Hazardous Materials Safety Administration granted Texas Eastern authorization to restore full operating capacity on its mainline
> Over the past three weeks, regional and neighboring market demand has jumped by 600 MMcf/d. An extended spell of hot weather in the Northeast has caused more gas to be consumed locally, and spot prices have surged in response
> The cash-to-winter spread has also narrowed, which may set up the market for a shortage this winter.
> Natural Gas inventories in the NE are now estimated to be near 757 Bcf, in contrast with the regions typical level of 1,000 Bcf headed into winter, and if the cash prices remain strong relative to winter prices, there will not be much incentive to store gas

The EIA is expected to report a 37-Bcf injection for the week ending August 20, which would be less than the 45-Bcf build in the corresponding week of last year
> Analysts estimates ranged from a build of 30 Bcf to 42 Bcf
> A build within this range would bring total stocks near 2.859 Tcf and the deficit to the five-year average near 181 Bcf
> The current end-of-refill-season storage number settled at 3.520 Tcf on ICE < This is too low to make it safely thru a cold winter. The "Bidding War" starts first in the regional spot markets..

This is impacting the overall market and probably somewhat to blame for the dip in oil price.

(Bloomberg) -- The Federal Reserve will likely taper its
asset purchases faster than the markets expect, and interest
rates will rise more quickly as well, according to Greg Jensen
of Bridgewater Associates, the world’s largest hedge fund.
“The economy is going to pull the Fed,” Jensen, the firm’s
co-chief investment officer, said in a Bloomberg TV interview on
Thursday. “There’s certainly inflation well above their target
and we think it will continue to accelerate if the Fed doesn’t
move.” < Inflation is bullish for oil and for all commodities, so the Fed doing anything to slow inflation is bearish for oil.

The central bank’s accommodative monetary policy in the
face of robust growth presents opportunities for investors,
Jensen said. Bridgewater favors shares of companies with cash
flows that will move with the economy, he said. The firm added
Coca-Cola Co., Walmart Inc. and Johnson & Johnson, among others,
in the second quarter, according to its 13F filing released
earlier this month.

“The biggest arbitrage you can take in the world right now
is take what the policy makers are giving you,” Jensen said.
“They’re giving you incredibly low interest rates relative to
high nominal GDP growth.”

Fed officials have highlighted increased risks from the
delta variant, which could affect the pace of economic recovery
from the pandemic and alter its willingness to scale back its
bond buying.

Two Fed officials made hawkish comments this week urging
the central bank to start tapering its asset-purchase program.
Fed Chair Jerome Powell has struck a more patient tone and will
give his take on the policy outlook Friday in a virtual speech
at the annual Jackson Hole symposium.

SEP21 Propane contract at $46.65/bbl < Very bullish for AR, RRC, EQT

Closing Prices:
> WTI prompt month (OCT 21) was down $0.94 on the day, to settle at $67.42/Bbl.
> In contrast, NG prompt month (SEP 21) was up $0.287 on the day, to settle at $4.184/MMBtu.

I step back from time to time and look at the change in gas storage level over the last 13 weeks (a quarter of a year). Over the last 13 week ending August 20 the delta to the 5-year average has widened by 126 Bcf. So, despite much higher natural gas prices than anyone expected during the last three months, US gas supply is not keeping up with demand. There are two big reasons.
1. Demand for US LNG is much higher than a year ago and no one expects it to decline because Asia and Europe are still dangerously short on gas. The US gas prices would need to go over $10/mcf to drive out LNG demand and probably higher than that because Asia and Europe will take the delivered price over $20 per mcf if necessary. We saw $20+ in Asia last year. BTW Russia could crush Europe this winter if they turn off the gas pipeline supplies.
2. So many coal fired power plants have been retired that gas to coal fuel switching cannot fix the problem anymore.
3. To a lesser extend low water levels in the west and a hot summer have increased natural gas demand for electricity demand in the West.

We will see larger storage builds in September, but the 5-year average builds also go much higher in Sept (62 Bcf to 81 Bcf). We'd need to see triple digit storage builds in September to come close to the 5-year average gas in storage by mid-November and I now see ZERO chance of that happening.

Next week's storage report should also be bullish. "As of 4:00 PM ET on August 26, the population-weighted nationwide temperature is 88.5°F which is 0.9°F colder than yesterday but 5.5°F warmer than the historical average. Accumulated Natural Gas-Weighted Degree Days (GWDDs) through 4:00 PM EDT tally 8.5 GWDDs which is 0.3 GWDDs less than yesterday through the same time but 1.9 GWDDs greater than average. This suggests an above-average contribution of temperature to natural gas demand." - https://www.celsiusenergy.net/p/intraday-weather.html