Energy Prospectus

Opening Prices:
> WTI is down 94c to $73.89/Bbl, and Brent is down 66c to $77.98/Bbl.
> Natural gas is up 15.2c to $5.629/MMBtu.

AEGIS Notes
Oil

WTI traded under $75/Bbl as investors assessed a surprise build in U.S. crude inventories and Chinese economic concerns
Oil inventories gained for the first time in eight weeks, according to government data
China’s factory activity contracted in September for the first time since the pandemic began amid widespread electricity rationing (Bloomberg)

The added use of oil for power generation and heating this winter making up for the shortfall of natural gas in Europe and Asia means that OPEC+ may need to step in with extra barrels, Rystad Energy said (Bloomberg)
An energy crunch this winter may add nearly 1 MMBbl/d of oil demand by the end of the year
Rystad noted that the 1 MMBbl/d is on top of the already rising demand for transportation fuels recovering from the pandemic

OPEC+, who meets Oct. 4, is likely to stick to an existing deal to add 400 MBbl/d to its output for November, according to sources reported by Reuters
“So far we will keep the plan to increase by 400 MBbl/d,” one of the sources said
OPEC Secretary-General Mohammad Barkindo said the current OPEC+ deal is helping to keep the oil market balanced
AEGIS notes that in the face of a global energy crunch this winter, many analysts are calling on OPEC+ to increase their output further to help meet additional oil demand < If OPEC+ does increase their output it will just use up the cartel's spare production capacity that much faster. If they stick with raising output by 400,000 bpd per month, their spare capacity will be gone within nine months. As I told you in today's newsletter, Morgan Stanley's #1 commodity expert says that global inventories of crude oil and refined products have been falling by 3 million bpd for the last 31 days. Do the math and you will see that today (during a season of lower demand for oil) it will take almost all of OPEC+ spare capacity to balance global supply and demand for oil.

Natural Gas

Gas is up by 15.2c this morning, to trade near $5.629
Yesterday, the Nov ’21 gas contract lost 40.3c in its first day as the prompt contract

U.S. Lower-48 weather forecasts have seen little change this week, with the gas-weighted cooling degree day forecast for October increasing by 2 to 42. The gas-weighted heating degree day forecast for October has fallen off from 232 to 212

Global benchmark prices have continued to trek higher to set record highs. The Japan-Korea Marker price is currently trading near $30, while the Dutch TTF price is just below that at $29.72/MMBtu < There is no possibility of the U.S. pushing natural gas prices high enough to lower demand for LNG. All we can do now to avoid natural gas shortages this winter is (a) do as much gas-to-coal switching for power generations (happening today) and (b) take gas prices high enough to drive out industrial demand, which is very bad since all of our supply chain inventories are below normal.

The EIA is expected to report a 87-Bcf injection for the week ending September 24, which would be more than the five-year average of 72 Bcf
Analysts estimates ranged from a build of 75 Bcf to 100 Bcf
A build within this range would bring total stocks near 3.169 Tcf and the deficit to the five-year average near 214 Bcf
The current end-of-season storage number settled at 3.645 Tcf on ICE, which is 104 Bcf higher than last week and represents the highest mark since late June

Spit balling here, but I could see a scenario with a Biden Executive Order temporarily curtailing LNG exports. I mean, we had a ban on crude exports for what, almost 50 years?

Sept. 30 (National Post) -- Could the energy crunch get so bad that oil prices hit US$200 a barrel? One options trader thinks so.

Brent US$200 calls for December 2022, options contracts that would profit a buyer from a rally toward that level, traded 1,300 times on Wednesday. While the contracts don't expire until October next year, they could profit from any sharp spike in prices this winter or next summer.

In a market where a single cargo of crude can currently fetch about US$160 million, the US$130,000 wager on oil reaching an all-time high is tiny. However, it reflects the fact that a growing number of options traders are betting that an energy crunch this winter may see prices rip higher. Brent crude, the global benchmark, hit US$80 for the first time in three years this week. Market watchers see demand exceeding supply to the tune of more than a million barrels a
day (three million bpd per Morgan Stanley) and expect that switching from natural gas to oil for space heating because of high natural gas prices could exacerbate that deficit.

Bank of America Equity Research this week underlined an earlier call that crude could top US$100 a barrel at some point over the winter, if it is exceptionally cold.

Eric Nuttall: Europe's energy mess should wake investors up to enormous opportunity in oil and gas stocks. Global bull market for natural gas could cascade across the commodity complex, set us up for 'darkest of winters'.

Energy crunch is 'revenge of old economy': Goldman Sachs says that natural gas could crack $100/MMBtu mark in Europe in a frigid winter. The price is currently approaching $30/MMBtu in both Europe and Asia.

Citibank warns: It's not just US$200 calls that have been trading in recent days. Holdings in Brent US$100 calls through to the end
of next year have climbed by 20,000 contracts this month.

From Bloomberg 9-30-2021

(Bloomberg) -- Winter’s coming with a global energy crisis in view and that may well mean greater oil demand, according to Citigroup and Rystad Energy. India’s diesel exports hit a 4-month high, Vortexa said.

* Rystad’s head of oil markets, Bjornar Tonhaugen
** Oil use for power and heating may jump 1 million barrels a day
*** That’s on top of rising demand for transportation fuel as economies rebound from the pandemic, resulting in an overall crude consumption increase of 3.1 million barrels a day in December from this month < Compare this to OPEC+ estimated additional production capacity available of 3.5 to 4.0 million barrels per day. Instead of Biden begging Saudi Arabia for more oil, Team Biden should be begging the US upstream companies to expand their drilling programs. Of course that isn't in the Woke Energy Plan Playbook.
*** OPEC+ likely to take a wait-and-see approach at next meeting

* Citigroup analysts Francesco Martoccia and Ed Morse
** Supply Deficit in the oil market seen rising from current estimates as tightness in the power sector prompts switching in favor of fuels
*** As it stands, bank expects the deficit at an average of 1.5m b/d over the next six months
*** European high-frequency power generation data have shown modest gas-to-coal switching due to higher gas prices
**** So far, that bullishness has yet to spread to petroleum-fired power generation
*** In the near term, oil’s physical fundamentals remain supportive with the gradual ramp-up of OPEC+ supply still lagging behind the demand recovery
*** While the current OPEC+ plan is for +400k b/d of output per month for the rest of this year, producers may be pushed to return more oil to the market, depending on the price of oil ahead of the Oct. 4 meeting

* Rystad’s head of shale research Artem Abramov
** Argentina’s oil production is expected to rise to the highest since 2012 amid rising flows from the Vaca Muerta shale formation
*** Country’s output may reach 560k b/d oil by December, the highest since October 2012
*** Nationwide oil production seen about 525k b/d in August, a full recovery to pre-Covid levels
*** Vaca Muerta’s oil production set to close the year at about 200k b/d; compares with 161k b/d in August
**** Oil and gas wells put on production in the region seen at 73 in 3Q, previous record was 59 wells in 4Q 2018
*** Vaca Muerta’s gas production rose to record 1.6 Bcfd in August

* Vortexa analyst Serena Huang
** India’s diesel exports are set to reach a four-month high in September as refiners maintain high operating rates despite weak domestic demand
*** Exports have climbed to 650k b/d this month, according to preliminary data from Vortexa, the highest level since May
**** That’s a 9% gain m/m; 12% increase y/y
*** India’s diesel demand has struggled to recover over the past months, with the monsoon further curtailing consumption by the transport and agriculture sectors in recent weeks
*** “Despite the growing diesel surplus, refiners are still keeping runs high to meet the country’s soaring gasoline demand”

Closing Prices:
> WTI prompt month (NOV 21) was up $0.20 on the day, to settle at $75.03/Bbl.
> NG prompt month (NOV 21) was up $0.390 on the day, to settle at $5.867/MMBtu.