Energy Prospectus

Opening Prices:
> WTI is down 89c to $70.40/Bbl, and Brent is down 94c to $73.45/Bbl.
> Natural gas is down 7.8c to $3.716/MMBtu.

AEGIS Notes
Oil

Oil prices were down over 1% Tuesday morning as the IEA said the global market has returned to surplus
> The Paris-based agency lowered its 1Q demand forecast by 600 MBbl/d < IEA has a long history of under-estimating demand.
> The IEA cited rebounding supplies from numerous producers are creating a new oversupply, which is likely to swell further early next year (BBG)

The oil curve reflects the reality of looser balances
> The spread between Brent’s two nearest contracts narrowed to 11c/Bbl on Tuesday compared with over $1 a month earlier, indicating a softening physical supply and demand balance
> Backwardation in the prompt timespread was the smallest since May
> “The first quarter of 2022 will clearly be challenging for oil,” said Bjarne Schieldrop, chief commodities analyst at SEB AB (BBG) < Oil demand is seasonal and Q1 is the lowest demand of each year.

Natural Gas

Calcasieu Pass LNG Block 2 receives FERC approval
> The liquefaction modules for block one were approved for commissioning in November
> When completed, Venture Global intends to have 18 liquefaction trains in nine blocks at Calcasieu Pass, giving the facility the capacity to produce 10 million tonnes per annum, or 1.5 billion cubic feet per day, of liquefied natural gas
> The first commercial LNG export cargoes are expected to depart from the facility in early 2022

Leidy South Expansion startup supports Appalachian cash basis -Platts
> The expansion project has helped keep local basis prices firm, despite a surge in Marcellius production, and heating demand at a six-year low
> In November, Transco received a green light from regulators to begin bringing online 225 MMcf/d of the project’s planned 582 MMcf/d capacity. The remaining capacity is expected to come online sometime this month

OPEC doesn’t expect Omicron to dent oil demand. Barron’s.
OPEC doesn’t expect the Omicron variant to slow oil demand next year, and it sees U.S. supply growth coming back slowly—a sign that the cartel expects to remain firmly in charge of the direction of oil prices, and that they’ll stay high. Given that OPEC has shown an interest in keeping prices above $60 a barrel, that is good news for oil producers, who can continue to pump out cash and fund their growing dividends at those levels. Absent a much more severe Covid outbreak or economic downturn, strong prices are likely to persist.

OilPrice.com
Tuesday, December 14, 2021

There seems to be a divergence of perceptions when it comes to the Omicron variant - with OPEC repeating that global oil demand is bouncing back while the IEA warns that Omicron is set to temporarily dent the global economic recovery. Despite the warning, the impact that the IEA foresees is still somewhat limited - it had cut its oil demand forecast for 2021 and 2022 by 100,000 b/d each, primarily because travel restrictions curbed jet fuel utilization. Against this background, Brent prices have marginally slid to $73.5 per barrel, whilst US benchmark WTI traded around $70 per barrel.

Saudi Arabia Warns of Oil Underinvestment. The Saudi energy minister Abdulaziz bin Salman stated that should the current period of reduced investments into E&P operations continue, global crude production would drop by 30 million b/d by 2030, only fortifying OPEC’s role as the prime oil supplier.

EIA Lowers 2022 Crude Output Forecast. With shale drillers still slow to splash the cash on new wells, the US Energy Information Administration lowered its 2022 US crude production outlook to average 11.85 million b/d next year, up a little less than 700,000 b/d from the 2021 annual average of 11.18 million b/d.