Energy Prospectus

Opening Prices:
> WTI is up 89c to $70.61/Bbl, and Brent is up 76c to $73.68/Bbl.
> Natural gas is up 22.6c to $5.164/MMBtu.

AEGIS Notes
Oil

Oil prices neared their six-week highs Monday morning as Gulf of Mexico oil supply is slow to recover
> About half of the crude output (884 MBbl/d) in the U.S. Gulf had yet to resume as of Sunday
> Backwardation in oil to swell with rising prices in 4Q, Goldman Sachs says

The oil market remains largely in deficit, and low OECD stocks will drive the forward curve into steeper backwardation (GS, Bloomberg)
> Longer-dated prices will rise as well, incentivizing higher production Goldman Sachs analysts Damien Courvalin said in a report
> “Accordingly, we reiterate out $80/Bbl price target for 4Q21 with upside risks to 1H22”
> Going into autumn, oil is poised to rally significantly, particularly should the Iranian deal fall apart, the bank said in Sept. 13 note
MY TAKE: I talk to a lot of people about the oil market and most of them and most of them (even people that work in the industry) still think there is a glut of oil. They think Covid related travel restrictions and EVs have reduced oil demand. That is aA tiny bit true, but demand for oil based products is back to pre-pandemic levels and will go higher as winter approaches. The big Paradigm Shift is that the Green New Deal will actually increase oil demand.

Natural Gas

U.S. gas production averaged 91.3 Bcf/d for the week ending September 10, up ~0.4 Bcf/d from the previous week’s average after previously shut-in production due to Hurricane Ida returned with 0.3 Bcf/d (PointLogic)
Roughly 1.69 Bcf/d, or 76%, of natural gas production in the U.S. Gulf remains shut in as only 12% of platforms and rigs remained evacuated September 10 out of more than 560 total in the region.

Gazprom announced on Friday it had finished construction of the Nord Stream 2 pipeline to Germany as CEO Alexei Miller announced the project was "fully completed", but flows will not begin until cleared by German regulators (Reuters)
The announcement marks an end to the closely scrutinized construction of the 745-mile-long pipeline with 5.32 Bcf/d capacity that began over five years ago.
Germany’s energy regulator stated that they have a four-month period to certify Nord Stream 2 complies with E.U. pipeline rules, which began on September 8.
Swiss-based Nord Stream 2 AG consortium said in a statement: "The required pre-commissioning activities will be carried out with the goal to put the pipeline into operation before the end of this year".
Gazprom is currently Europe's largest supplier of natural gas and accounts for more than a third of the region's gas market.

Nexus Gas Transmission planned service outages could boost natural gas prices in the U.S. Midwest for October (Platts)
> Nexus is planning a nearly 500 MMcf/d service outage beginning October 11, that would see the Midwest lose a significant chunk of production from the Northeast
> Capacity will decline from 1.45 Bcf/d to 950 MMcf/d before returning to full capacity on October 26

From Hackett Financial Advisors that focus primarily on the agriculture futures markets:

Current Trajectory for US Natural Gas in Storage is for it to Reach 3.2 TCF by the beginning of the winter heating season. That is Down from 3.9 TCF Last
Year-This would Equate to 1 TCF left in Storage at the end of the Heating Season Assuming Another Warm Winter like Last Year. If this Winter is as Cold and Long as we are Forecasting, then this number could easily Fall below 600 BCF Which Would be An All-time Low.

LNG Net Exports Continue to Set Records and that Trend Should Continue Given the Extreme LNG Shortage Overseas/Asia and Record High prices.

Natural Gas Peak Monthly Demand Should Set All Time Highs this Winter Above 3.4 TCF with total Demand for the Winter some 400 BCFf Above Last Year.

Natural Gas Price Forecast: "Natural Gas Prices Near Long Term Resistance and Overbought-This Should Lead to a Correction Heading into October-Then Expect the Moonshot Thereafter". < This primarily based on their opinion that we are now in a solar cycle that will lead to colder than normal winters.

MY TAKE: In the real world, natural gas storage will not go below a TCF because the utilities will shift as much power generation as they can back to coal and the "Bidding War" prices will take out some industrial demand. I don't think the bidding war will take out LNG demand because Europe and Asia will pay up to $30/MMBtu if they have to for space heating fuels.

The Energy Report: Bubblin' Crude
By Phil Flynn (Sep 13, 2021 09:14AM ET)

Crude oil is bubbling and perhaps getting ready to boil over! It’s the fundamental picture for oil that is becoming more bullish by the day. Oil prices are breaking out to the upside on concerns about a slow recovery in U.S. production. There are energy shortages in Europe due to failed solar energy causing record-breaking natural gas prices along with more tropical storm activity in the Gulf of Mexico.

We have been warning people to make sure that they get hedged on products, both petroleum and natural gas and we continue to stress that there are significant upside risks in these markets.

The U.S. energy industry made some progress on bringing back oil and gas production in the Gulf of Mexico over the weekend but there are also reports of significant damage. That means we won’t see production come back on for months possibly. What that means is we’re going to continue to see a tighter supply of both oil and natural gas and that’s going to be supportive especially for natural gas as we get into the higher demand months called winter.

As of Sunday, the Bureau of Safety and Environmental enforcement reported that 48.56% of Gulf oil production is offline and 54.39% of natural gas. Despite the progress, this is still one of the slowest recoveries in hurricane history as far as Gulf oil production has been concerned. This is going to add to the U.S. supply deficit and is raising concerns about sharply higher prices as we go into winter.

Accuweather reports that a hurricane watch was issued for parts of the Texas Gulf coast Sunday night as Tropical Storm Nicholas lurked in the southwestern Gulf of Mexico. AccuWeather forecasters expect the storm to bring flooding downpours from northeastern Mexico to New Orleans, with the most significant flooding expected around the Houston area early this week.

As of 5 a.m. EDT Monday, Nicholas was located about 200 miles south of Port O’Connor, Texas, and 45 miles southeast of the mouth of the Rio Grande River. The storm had maximum sustained winds of 60 mph and was slowly moving to the north at a speed of 14 mph. Tropical-storm-force winds extend outward up to 115 miles from the center of Nicholas.

The hurricane watch covered areas from Port Aransas to Freeport, Texas, while a tropical storm warning was in effect for the coast of Texas from the mouth of the Rio Grande to High Island, Texas, the National Hurricane Center (NHC) said. A tropical storm watch was issued for areas from the mouth of the Rio Grande to Port Aransas, Texas, and storm surge warnings were in place for parts of the Texas coast. Forecasters have been closely monitoring Nicholas since it was a tropical wave.

Natural gas prices are still very high with shortage concerns around the globe. We’ll get a preview of what Joe Biden’s energy policy is going to look like in a few years by looking at Europe. The Wall Street Journal reports the EU’s heavy reliance on wind power, coupled with a shortage of natural gas, has led to a spike in energy prices.

In a must-read, the Journal wrote that natural gas and electricity markets were already surging in Europe when a fresh catalyst emerged: The wind in the stormy North Sea stopped blowing. The sudden slowdown in wind-driven electricity production off the coast of the U.K. in recent weeks whipsawed through regional energy markets. Gas and coal-fired electricity plants were called in to make up the shortfall from the wind.

Natural-gas prices, already boosted by the pandemic recovery and a lack of fuel in storage caverns and tanks, hit all-time highs. Thermal coal, long shunned for its carbon emissions, has emerged from a long price slump as utilities are forced to turn on backup power sources. The episode underscored the precarious state the region’s energy markets face heading into the long European winter. The electricity price shock was most acute in the U.K., which has leaned on wind farms to eradicate net carbon emissions by 2050. Prices for carbon credits, which electricity producers need to burn fossil fuels, are at a record too.

EBW Analytics says that last week natural gas shook off a bearish Weekly Storage Report to rise above $5.00/MMBtu in September for the first time since 2008, before retreating on Friday. Technicals suggest the October contract may run towards $5.11-5.13/MMBtu, but the arrival of Tropical Storm Nicholas along the Texas Gulf Coast early this week may interrupt both spot market demand and bullish momentum.

After spiking $1.087/MMBtu (28.2%) in three weeks, natural gas is liable to correct lower at any point. Still, 1.21 Bcf/d of supply are offline post-Ida and recent gains remain fundamentally justifiable from a medium-to-long-term seasonal standpoint.

Closing Prices:
> WTI prompt month (OCT 21) was up $0.73 on the day, to settle at $70.45/Bbl. < A six week high.
> NG prompt month (OCT 21) was up $0.293 on the day, to settle at $5.231/MMBtu. < A 7 year high!

Today's move may have something to do with Tropical Storm Nicholas, which is going to dump a lot of rain. I live in Sugar Land (SW of Houston). It looks like we could get 5 to 7 inches of rain, but I think it will be at the low end. As long as we don't loose power I will be happy. Galveston may get over a foot of rain.