Energy Prospectus

Opening Prices:
> WTI is up $1.55 to $68.97/Bbl, and Brent is up $1.38 to $72.45/Bbl.
> Natural gas is up 20.2c to $4.386/MMBtu.

If you missed the AEGIS webcast yesterday, here is the link: https://info.aegis-hedging.com/webcast- ... st-26-2021
AEGIS is a valuable resource for me because they tract the oil, gas and NGL markets in both the US and Canada.
You can submit a question to Matt Marshall at the link above. Please tell Matt that you are an EPG members.

AEGIS Notes
Oil

West Texas Intermediate is poised to settle Friday with its largest weekly gain in 11 months
WTI is up almost 10% for the week

Tropical Storm Ida is moving toward the U.S. coast, hitting oil and gas production
> Ida is the ninth storm of the 2021 Atlantic hurricane season and is passing through the Cayman Islands on its way to landfall in Lousiana (NOAA)
> It is expected to reach hurricane strength over the gulf Saturday and make landfall late Sunday or Monday
If you live in Southern Louisiana or along the Mississippi Gulf Coast you should fill up your gasoline and/or diesel tanks and make plans to evacuate. Ida is expected to make landfall late Saturday or Sunday with winds over 100 mph. Be smart.
AEGIS notes that any oil production curtailed due to the storm will likely return reasonably quickly. Import/export cargoes can also be delayed

China may release fresh oil import quotas for independent refiners by October (Bloomberg)
The new quotas could spur an increase in purchases of oil, according to Energy Aspects, which said a crackdown on the sector is likely in its final stages
The “teapot” refiners operate differently than China’s state-owned refiners
An increase in quotas could drive more oil demand from China

Natural Gas

Gas is up 20.2c this morning at $4.38 after gaining 28.7c in its best day since February, thanks to a bullish inventory report and Ida
Prices jumped following the EIA’s report of a 29-Bcf injection during the week ending August 20
The build was much smaller than any analysts’ estimates. The average analyst estimates were around 39 Bcf
The ICE end-of-season storage number, a proxy for where traders see inventory levels entering winter, fell 20Bcf in response to yesterday’s smaller-than-expected inventory report

The U.S. working gas storage volumes now stand 563 Bcf, or 16.5%, less than the year-ago level of 3.414 Tcf and 189 Bcf, or 6.2%, less than the five-year average of 3.040 Tcf < The US needs 3.8 to 4.0 Tcf of natural gas in storage to safely make it through a colder than normal winter. There is now ZERO chance storage will get to that range by mid-November. Propane inventories are also dangerously low.

BHP, B.P., and Shell said they have begun to shut in production on their offshore platforms in anticipation of Tropical Storm Ida
> The U.S. GoM accounts for 5% of U.S. natural gas production, but nearly all of U.S. LNG export capacity
> Hurricane Laura caused extended outages of both Sabine Pass LNG and Cameron LNG facilities around this time last year
> If LNG capacity is knocked offline, it will help loosen the U.S. S&D balance, assuming demand losses outweigh production losses
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Phil Flynn's Energy Report before the markets opened:

"The natural gas chickens came home, whatever that means. The underlying bullish fundamentals played out in epic fashion after the Energy Information’s Administration (EIA) released an almost disturbingly bullish report, raising fears about the adequacy of supplies going into winter. It did not help that the market is also coming to grips with more production getting shut down in the Gulf of Mexico. The EIA said that working gas in storage was 2,851 Bcf as of Friday, Aug. 20, 2021, according to EIA estimates. This represents a net increase of 29 Bcf from the previous week. Stocks were 563 Bcf less than last year at this time and 189 Bcf below the five-year average of 3,040 Bcf. At 2,851 Bcf, total working gas is within the five-year historical range."

Lower US dollar is also supporting the oil price.

Federal Reserve Chairman Jerome Powell said Friday that the U.S. economic recovery appears to be making progress, but warned that the central bank needs to be careful not to tighten its policy before enough Americans can return to work.

“Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful,” said Powell in remarks delivered at the central bank’s Jackson Hole Economic Symposium.

Powell’s warning hints at a more cautious approach to pulling back on its policy, as some members of the policy-setting Federal Open Market Committee start to call for slowing its asset purchase program — now.

Still, the Fed chairman emphasized that the spread of the Delta variant presents a “near-term risk” to economic growth, but said he remained optimistic about the economic recovery.

Powell specifically called attention to the labor market, where 6 million people remain out of work compared to pre-pandemic levels. Hiring firms have been scrambling to find workers, with a record 10.1 million job openings recorded in June.

He added that the vaccination campaign, schools reopening, and the expiry of extra unemployment insurance will eventually restore a chunk of those unemployed.

“These favorable conditions for job seekers should help the economy cover the considerable remaining ground to reach maximum employment,” Powell said, pointing to wage gains among some corners of the labor market.

But the Fed chairman acknowledged rising inflation, which he described as a “cause for concern.” Data from the Bureau of Economic Analysis showed prices (measured in the Personal Consumption Expenditures Index) rising by 4.2% on a year-over-year basis, a pace not seen in over 30 years.

Powell said he continues to expect high inflation to be “transitory,” expecting factors like unusually high used car prices to come down soon.

“Policy can and should look through temporary swings in inflation,” Powell said at the conference, which was moved to a virtual format this year due to high COVID-19 case levels in Jackson Hole, Wyoming.

Time to taper?

Powell’s commentary comes as the FOMC debates whether or not to begin slowing the pace of its asset purchases. Since the depths of the pandemic, the Fed has been buying about $120 billion a month in U.S. Treasuries and agency mortgage-backed securities to stimulate demand in the economy.

The test for the Fed to start tapering that so-called quantitative easing program has been “substantial further progress” on its dual mandate goals of maximum employment and price stability.

Powell said high inflation readings hit that mark on its price stability mandate. But on employment, Powell said there has been “clear progress,” but suggested he may want to see more data before declaring the labor market ready to handle a Fed taper.

“If the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” Powell said, adding that the Delta variant remains a risk.

The Fed will receive another employment report, covering the month of August, next Friday. That will be the last employment print before the central bank’s next policy-setting announcement scheduled for Sept. 22.

On interest rate hikes, the Fed chairman emphasized that the timing of any interest rate hikes are not to be linked to the timing of taper, noting that the Fed still has “much ground to cover” before wanting to raise rates from near-zero.

“We have articulated a different and substantially more stringent test [for liftoff],” Powell said Friday.

Powell said the economy has shown “more progress” since the Fed’s last policy-setting meeting in July, where the Fed held interest rates at near-zero.

Closing Prices:
> WTI prompt month (OCT 21) was up $1.32 on the day, to settle at $68.74/Bbl.
> Also, NG prompt month (SEP 21) was up $0.186 on the day, to settle at $4.370/MMBtu. < The OCT21 contract will be the front month on Monday. It closed at $4.392 today.