Energy Prospectus

Opening Prices:
> WTI is down 48c to $82.33/Bbl, and Brent is up 6c to $84.38/Bbl.
> Natural gas is down 15.5c to $5.627/MMBtu.

AEGIS Notes
Oil

OPEC+’s technical committee downgraded their view of market tightness for 4Q 2021 (BBG)
> The global oil supply deficit will only be 300 MBbl/d on average for the fourth quarter, OPEC+’s technical committee concluded on Thursday
> The new forecast is much smaller than the 1.1 MMBbl/d shortfall the committee expected using older data
> OPEC’s sub-committee also adopted a more bearish outlook for 2022, where the group sees an average supply surplus of 1.6 MMBbl/d versus preliminary estimates of 1.3 MMBbl/d
> OPEC and its allies will meet on November 4 to review their plans to gradually increase supply
MY TAKE: I think it is becoming clear to the cartel that they won't be able to keep adding 400,000 bpd of supply per month much longer. At least half of their member countries are already at maximum capacity.

Oil is set to close out Friday with a monthly gain of about 10% on continued signs that demand is outpacing supply and depleting stockpiles
> China is surveying its refiners for solutions to its energy crisis. Asking questions on whether processors have the ability to ramp up their fuel production (BBG)
> Oil has been one of the best-performing commodities lately as a global gas crunch has increased demand for petroleum products

Natural Gas

The prompt-month natural gas contract is down by 15.5c this morning, near $5.627, extending on yesterday's loss of 41.6c
> The U.S. reported an 87-Bcf injection for the week ending Oct 22, which was on par with analysts' estimates
> The deficit to the five-year average has continued to shrink over the last month from around 235 Bcf to 126 Bcf, and working gas inventories are now at 3.548 Tcf
> 6-10 day weather forecasts for the South Central region cooled significantly. The November gas-weighted heating degree day total has increased by 28-days this week, to 565

Feedgas demand at U.S. LNG facilities are within reach of the all-time record of 11.95 Bcf/d at 11.83 Bcf/d
> The large increase came at Sabine Pass LNG, where flows jumped above 4 Bcf/d
> This Is the highest mark for feedgas demand since April
> Two more LNG export facilities will be online early in 2022, increasing exports by 1.5 to 2.0 Bcf/d

What a difference a year makes:

According to the U.S. Energy Information Administration, in Q3 of 2020, U.S. Henry Hub average natural gas prices were $1.77 per MMBtu in July and rose to $2.30 in August before tumbling to $1.92 in September. Coming to 2021, the fuel was trading at $3,84, $4.07 and $5.16 per MMBtu, in July, August and September, respectively. In other words, natural gas traded noticeably higher in all the three months.

My Q4 forecasts are based on HH gas averaging $5.00/MMBtu and WTI oil averaging $75/bbl. So, there is significant upside to all of my Q4 forecasts and except all of our upstream companies to report BIG increases in the proved reserves an net asset value at year-end.

Note from BofA Equity Research:
"Our commodity research team notes that gas-to-oil substitution (in Europe and Asia due to extremely high natural gas prices) could create 1-2mb/d of incremental oil demand at the same time as increased air traffic could add 300-500kb/d of incremental demand by 1Q22. We believe Big Energy's Upstream capital allocation will remain immune to such oil price upside (spike up to $100/bbl) – increasing its cash flow harvest."

There is a FEAR that high oil and gas prices will cause a significant increase in drilling activity and result in a production surge that will drive down oil prices. My take is that the longer than normal commodity prices 2020 to mid-2021 has done a lot of damage to the oilfield services sector. Lack of workers and equipment will make it difficult to ramp up D&C activity. The "Good DUCs" have all be completed and it will take at least 100 more rigs drilling for oil in the US to push production higher.

OPEC+ to Stick to Supply Discipline. The OPEC+ Joint Technical Committee meeting this week largely agreed that the oil group should maintain its 400,000 b/d monthly supply increases, despite importers’ calls for more barrels.

Iran Nuclear Talks Will Restart Next Month. Top negotiators from Iran and the European Union have agreed to restart nuclear talks by the end of November following a three-month hiatus triggered by the election of President Ebrahim Raisi.