Energy Prospectus

Opening Prices:
> WTI is up 45c to $82.89/Bbl, and Brent is up 32c to $84.65/Bbl.
> Natural gas is down 12.6c to $4.863/MMBtu.

AEGIS Notes
Oil

Oil prices reached a new seven-year high Tuesday, with WTI trading near $83.50/Bbl
Oil’s bullish catalysts:
> OPEC+ supply plan to only add 400 MBbl/d per month despite calls for more oil
> OPEC+ as a whole unable to perform to its quota < On slide 15 of my 10/16 podcast you can see why; only 5 of the OPEC+ members have any remaining untapped production capacity. Plus, those 5 probably can't increase production fast enough to keep up with the 400,000 bpd increases per month.
> Gas-to-oil switching
> Better jet fuel demand
> Overall recovering economies from COVID

An oil pipeline that for years moved crude from the U.S. Gulf Coast to Midwestern refiners is reversing flows to ship Canadian and Bakken oil to the global market from January (Bloomberg)
> The 632-mile Marathon-owned Capline pipeline will begin sending oil from Patoka, Illinois, to St. James, Louisiana, at an initial rate of just over 100 MBbl/d
> According to a regulatory filing, the company will begin accepting oil to fill the line next Monday

Natural Gas

Natural gas prices fall below $5 for the first time since September 23, to trade near $4.925
> According to Commodity Weather Group (CWG), the U.S. should see warmer-than-normal weather through at least November 1, which translates to less heating demand
> Mild weather is also expected in Europe, which has contributed to lower TTF prices, which Henry Hub has strongly correlated with over the past several weeks
> Lower prices are also being driven by higher production estimates in the Haynesville and Permian, according to Energy Aspects
> Northern China is seeing an early start to the winter heating season due to falling temperatures, which will boost demand for natural gas

Goldman Sachs lifts its price target for European gas prices on tighter Russian supply
> Dutch TTF prices are expected to average $30/MMBtu during the months of November and December
> Russia’s Gazprom PJSC didn’t book additional export capacity for next month via Ukraine, despite its promise to increase export volumes to ease the supply crunch < Putin has Europe right where he wants them; begging Russia for more gas.
> Goldman kept its price forecast for 1Q2022 prices at $17.60/MMBtu, which assumes normal winter weather and increased Russian flows

MY TAKE: As AEGIS pointed out in their webinar on October 7, the NOV21 NYMEX contract moved over $6.00 early in October because of FEAR that natural gas in US storage was too low to make it through a cold winter. Gas price rallies are rare in October and rallies based on FEAR never are sustainable. That said, we are going to begin the winter season with ~150 Bcf less in storage than the 5-yr average and gas demand is much higher than it was five years ago. If the weather turns colder in November and we start seeing draws from storage larger than normal, which I predict will happen, we should see a more sustainable rally for gas. LNG exports to Europe and Asia will remain at or above capacity thru the winter and we have another 2 Bcf per day of export capacity coming online in January.

Trading Economics: "WTI crude futures failed to hold early gains to trade around $82 a barrel on Tuesday after rising as much as 1.4% early in the session, as investors continue to weigh prospects of slowing global growth. Still, oil prices remain close to 7-year highs amid an energy crunch and falling temperatures in China. Also, the OPEC+ alliance has been struggling to add crude back to the market, in particular from members such as Angola and Nigeria due to lack of investment and exploration. Also, power generators continue to switch from expensive gas and coal to oil and diesel as major industrial countries face power shortages."

Trading Economics: "Natural gas futures fell below $5 per million British thermal units, the lowest since September 22nd as demand is seen falling amid mild weather in the US for the rest of October. Meanwhile, major Chinese energy companies are in talks with US exporters to secure long-term liquefied natural gas supplies, as soaring gas prices and domestic power shortages heighten concerns about the country's fuel security, Reuters reported mentioning several sources. Still, gas prices remain elevated and not far from a seven-year high of $6.5 early hit earlier in the month, amid strong demand during the winter heating season and depleted inventory levels, especially in Europe and Asia. The EIA forecasts that natural gas prices at the US benchmark Henry Hub will average $5.67 per million British thermal units between October and March, the highest winter price since 2007–2008."

My forecast models are based on Q4 prices of $75/bbl for WTI oil and $4.75/MMBtu for HH natural gas.

Closing Prices:
> WTI prompt month (NOV 21) was up $0.52 on the day, to settle at $82.96/Bbl. < Another new 7 year high close.
> Also, NG prompt month (NOV 21) was up $0.099 on the day, to settle at $5.088/MMBtu.