Energy Prospectus

Opening Prices:
> WTI is down 34c to $71.89/Bbl, and Brent is down 35c to $75.84/Bbl.
> Natural gas is up 3.1c to $4.836/MMBtu.

AEGIS Notes
Oil

"U.S. crude inventories at lowest level since Oct 2018; Citi says $100 gas is possible this winter."

U.S. Crude inventories fell almost 3.5 MMBbl last week, to the lowest level since October 2018 but less than expected (EIA)
A large gasoline build was unexpected, likely the result of higher oil-processing runs but also a flow of foreign gasoline into the Gulf Coast (Bloomberg)
Production rose to 10.6 MMBbl/d as platforms returned to service in the Gulf of Mexico following the storm < The week prior to Hurricane Ida U.S. oil production was estimated to be 11.5 MMBbl/day.

Light crude producer Syncrude Canada cut September supplies due to a mechanical disruption at its oil sands site (Bloomberg)
Customers were informed of a supply cut of as much as 20% in September
Syncrude’s upgrader, which turns bitumen into light synthetic crude, produced about 275 MBbl/d between January and May, according to Alberta’s regulator

Beijing is asking local governments to prepare for the potential downfall of China Evergrande Group (WSJ)
This could be a sign that China is reluctant to bail out the developer while preparing for the economic fallout
The local governments have been tasked with preventing unrest and mitigating the ripple effect on home buyers and the broader economy, according to the journal
Evergrande’s woes could cost 1 basis point on GDP if handled well from here, according to Li Daokui, formally an advisor to the People’s Bank of China, in an interview with CNBC

Natural Gas

Cheniere’s Train-6 at its Sabine Pass LNG facility inches closer toward an in-service date
On Wednesday, September 22, FERC gave the company permission to introduce feedgas to Train 6
Cheniere expects the train to enter commercial service in early 2022, but analysts note it will likely begin producing LNG this year

Citigroup says $100 natural gas price is a possibility this winter
Citigroup Inc. doubled its Asian and European natural gas price forecasts and said that in the event of a cold winter, benchmark prices could eclipse $100/MMBtu
The bank’s forecast for the JKM and TTF benchmark prices were increased from $13.90 and $12.90 to $28.80 and $27.70
The bank said that strong demand and a lack of meaningful supply growth have sharply tightened the market. And a surprise demand surge or supply outage could send prices even higher
The group also raised its 4Q2021 Henry Hub forecast to $6 from $3.90

We're living through yet another experiment in government central planning. I'm sure this time will be different. Buckle up!

Europe's decision to move away from hydrocarbon based power generation before they had enough wind and solar built may go down as one of the dumbest moves in history. If they have the same winter they had last year a lot of Europeans will get very cold this winter.

The Green New Deal isn't green, isn't cheap and won't lower the demand for oil in this decade.

Note from Jesse Felder, a really smart guy.

Is Oil About To Breakout Of Its Long-Term Downtrend?
September 22, 2021

There is a compelling case to be made for favoring value stocks today. Among those, the energy sector remains the most compelling by a long shot. In addition to being cheap, it’s really the only sector within the broad market where insiders continue to be very bullish (the broad market, in contrast, continues to be sold by the smartest of the smart money). So it would appear that insiders believe oil prices are likely to breakout above critical resistance represented by the upper trend line of its long-term downtrend channel.

It’s also very encouraging to see commercial hedgers in crude oil futures actually cover their short positions (or hedge less) as oil prices rise. This is fairly unusual. Just by glancing at the chart below, it’s apparent that hedgers typically add to shorts (hedge more of their production) when prices rise and vice versa. The fact that they are actually adding exposure as prices have risen over the past year or so would appear to be a signal that they, too, are betting on a breakout higher in oil prices.

As Paul Tudor Jones has said, “When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.” Such a breakout of a trend that dates back over a decade then would represent an important sign post in terms of the direction of not only the broader commodity sector but also inflation, as energy prices are a very important input for both. For these reasons this chart, as well as the activity of those most closely tied to it, is worth keeping a close eye on.
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As I have been telling you for months in my weekly podcasts, the OECD inventories steadily falling is going to eventually lead to much higher oil prices. Why? The OECD countries are the "Consumers of oil". Their economies depend on a steady supply of energy and for at least another decade the primary source of that energy will be oil. Within nine months OECD inventories will be less than 27 days of supply and OPEC+ spare capacity will be gone. If this comes to pass, WTI oil will need to go over $100/bbl and the industry will need to complete a heck of a lot more wells than are being completed today.

Trading Economics:
"WTI crude futures gained traction to rise almost 1% to $72.8 a barrel during Thursday trades, approaching levels not seen since August 2nd, on prospects of a tightening market. EIA data showed crude oil inventory stocks fell almost by 3.5 million barrels the lowest level since 2018 in the previous week. At the same time, Around 16% of the Gulf of Mexico oil production remained offline after the impact of two hurricanes, while a natural gas crunch in Europe is also boosting oil prices in hopes that utilities could shift to oil if a harsh winter arrives. Still, market participants were somewhat cautious after disappointing September PMI data from Europe, which revealed firms remained severely constrained by supply chain bottlenecks and material shortages."

"US natural gas futures were trading at almost $4.9 per million British thermal units, recovering from a 2-week low of $4.7 and getting closer to an over 7-1/2-year high of $5.5 hit in mid-September on the back of robust demand for US LNG exports as global prices surge and output remains sluggish in the aftermath of Hurricane Ida. Gas prices hover at record levels around $24/mmBtu in Europe and near $27/mmBtu in Asia. Meanwhile, the Energy Information Administration reported a 76 Bcf injection into inventories last week, broadly in line with market expectations."