Energy Prospectus

Opening Prices:
> WTI is up 4c to $84.19/Bbl, and Brent is up 7c to $84.85/Bbl.
> Natural gas is down 14.8c to $4.831/MMBtu.

AEGIS Notes with my comments in blue.
Oil

Oil rallied yesterday after the EIA Short Term Energy Outlook ("STEO") report forecast oversupply next year, pouring cold water on expectations of an immediate emergency stock release
> The (clueless) White House said it continues to look at all the tools it has available to limit the impact of high prices on consumers

The White House, in other news, pledged to discuss a key pipeline that carries Canadian crude through Michigan, stressing the U.S. isn’t considering a shutdown of the pipeline the state’s governor wants to be closed (Bloomberg)
> Press secretary Karine Jean-Pierre told reporters on Tuesday that the U.S. and Canadian governments will “engage constructively” on the future of Enbridge’s Line 5 pipeline
> AEGIS notes Line 5 is a twin pipeline that supplies 55% of Michigan’s propane needs. Overall, Line 5 transports up to 540 MBbl/d of light crude oil, light synthetic crude, and NGLs, according to Enbridge < A lot of families in rural areas of Michigan use propane to heating and cooking. Michigan's governor would be insane to shut down this vital supply line.

Supply increases next year from OPEC+ as well as U.S. operators will ultimately pressure prices lower (EIA)
> “We forecast that global oil stocks will begin building in 2022, driven by rising production from OPEC+ and the United States, along with slowing growth in global oil demand,” the EIA said
> Global oil supply is set to average 101.42 MMBbl/d in 2022, while worldwide demand is estimated to be 100.88 MMBbl/d, according to the agency
I disagree with EIA's conclusion. This looks like EIA is being instructed by the White House to say things that will help lower gasoline prices. I no longer trust anything coming out of Washington.

Natural Gas

The prompt-month (Dec ’21) natural gas contract is down by 14.8c, extending on yesterday’s losses to trade near $4.831
> Yesterday, Henry Hub fell by 44.8c or 8.2%, with many analysts chalking the loss to mild weather forecasts. Still, Europe's gas price index (TTF) fell by $2.218 (8.3%) to $24.674/MMBtu
> The DEC21 NYMEX contract is now trading $1.34 below its seven-and-a-half-year high of $6.312 reached on October 5
> Mild autumn weather has allowed inventories to build, placing total stocks slightly below the five-year average
> Production has also been ticking higher over the last week, near a 12-month high, according to Platts

The EIA lowers its Henry Hub spot gas price forecasts in its November STEO report
> The agency forecasts that gas will average $5.54 in 4Q2021, down from $5.80. It also dropped its 1Q2021 forecasts 29c lower to $5.24
“Because of uncertainty around seasonal demand, we expect natural gas prices to remain volatile over the coming months with winter temperatures to be a key driver of demand and prices,” EIA said
> The EIA said that gas prices will generally decline through 2022 as U.S. gas production rises and demand growth slows, particularly in LNG < I sure don't see demand for LNG falling during the next six months. All of my forecast models are based on HH gas prices of $5.00 in Q4 2021 and $4.25 in 2022. Much colder weather will be coming the week of Thanksgiving.

Closing Prices:
> WTI prompt month (DEC 21) was down $2.81 on the day, to settle at $81.34/Bbl.
> Also, NG prompt month (DEC 21) was down $0.099 on the day, to settle at $4.880/MMBtu.

Oil drop was primarily a reversal of yesterday's spike.

Hedge Funds Take Profits But Believe Oil Prices Will Continue To Rise
By Tsvetana Paraskova - Nov 10, 2021, 6:00 PM CST for OilPrice.com
Hedge funds have been liquidating their long positions in order to take profits from the recent oil price rally

The liquidation of long positions was driven by a desire to take profits ahead of the Fed policy announcement and OPEC+ meeting
Overall, hedge funds remain bullish on oil prices in the short term

Portfolio managers are still betting on higher oil prices in the short term, despite liquidating some of their long positions to take profits from the price rally in recent weeks. Hedge funds reduced their net long position—the difference between bullish and bearish bets—in Brent Crude and WTI Crude for a fourth week running in the week to November 2. The decline in the net long, however, was mostly driven by a liquidation of longs rather than an opening of short positions as money managers sought to take profit before the Fed policy announcement and the OPEC+ group’s decision on oil supply.

Overall, in the week to November 2—the latest reporting week in the Commitment of Traders (COT) report—hedge funds continued to believe that oil prices could go higher.

Portfolio managers’ positioning in the most actively-traded petroleum futures and options contracts still points to a prevalent bullish sentiment in the market, which is also reflected in the latest forecast from the U.S. Energy Information Administration (EIA) and the latest outlooks on oil demand by major investment banks and oil companies. < BofA Equity Research now forecasts that Brent will go to $120/bbl in 2022.

In the week to November 2, hedge funds sold the equivalent of 45 million barrels in the six most important petroleum-related contracts, according to estimates by Reuters market analyst John Kemp based on the latest COT report.

But the sales were overwhelmingly driven by liquidation of longs, not new shorts, suggesting that portfolio managers took a breather and took profits after the October rally in oil prices.

“In energy the net selling of WTI and Brent extended to a fourth week with the combined net long being reduced by 27k lots to a two-month low at 573k lots. Brent longs were already being reduced before the price on October 26 fell short by 4 cents in touching the 2018 high, and since then long liquidation has picked up,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Monday, commenting on the COT report.

“With all fuel products also being hit by profit-taking the total 50k lots reduction was the biggest sector reduction since August,” Hansen added.

While profit-taking dominated the oil market in the days preceding the Fed policy announcement and the OPEC+ meeting on November 3 and 4, respectively, the positioning data still points to generally bullish market sentiment.

The world’s largest investment banks echo this bullish stance, with many predicting oil could reach $90, $100, or even $120 a barrel over the next six months, on the back of a rebound in air travel, gas to oil switching amid high natural gas prices, and a full comeback of Asian demand.

Global oil demand has already topped 100 million barrels per day (bpd) last seen before the pandemic, supermajor BP said earlier this month.

“We are at or about 2019 levels now,” Russell Hardy, CEO at the world’s biggest independent oil trader, Vitol, told the online Reuters Commodities Trading Conference this week, as carried by Bloomberg.

Demand is set to continue rising into next year, Hardy added.

“Crude oil prices have risen over the past year as result of steady draws on global oil inventories, which averaged 1.9 million barrels per day (b/d) during the first three quarters of 2021,” the EIA said in its latest Short-Term Energy Outlook (STEO) published on Tuesday.

The EIA expects Brent Crude prices will remain near current levels for the rest of 2021, averaging $82 a barrel in the fourth quarter. Next year, Brent is set to average $72 per barrel amid higher production from OPEC+, U.S. shale, and other non-OPEC+ countries that will outpace slowing growth in global oil consumption.

“We forecast global stock builds starting in the spring of 2022, which likely will reduce some of the tightness in the market that may be contributing to high front-month prices,” the EIA noted.

The OPEC+ group and its leader Saudi Arabia continue to justify the decision to keep the market tight with an expected stock build within just a few months. But the current tightness in supply makes hedge funds and investment banks bullish on oil in the short term.

By Tsvetana Paraskova for Oilprice.com