Energy Prospectus

Opening Prices:
> WTI is down 37c to $88.99/Bbl, and Brent is down 22c to $90.56/Bbl.
> Natural gas is down 17.5c to $4.073/MMBtu.

After the markets closed yesterday, API reported more draws from storage:
> Crude inventories declined by 2.03 million barrels, including a decline of 2.5 million barrels at Cushing, OK
> Gasoline inventories declined by 1.14 million barrels
> Distillates inventories declined by 2.2 million barrels < If confirmed by EIA, this should take distillate inventories (diesel and heating oil) more than 20% below the 5-year average.

AEGIS Notes
Oil

A tighter oil supply and demand imbalance has fueled oil’s rally, but an Iranian nuclear deal could be around the corner
> A flurry of diplomacy in Vienna has spurred renewed optimism of a breakthrough in talks to reassemble Iran’s nuclear deal (Bloomberg)

U.S. oil production will grow even more than the government previously expected
> The Energy Information Administration said oil output will average 12.6 MMBbl/d in 2023, a 200 MBbl/d increase from its previous estimate < Pre-Pandemic U.S. oil production peaked at 12,860,000 bpd in November 2019.
> The current all-time high of 12.3 MMBbl/d was set in 2019 < This is the full year average for 2019.
> Production for 2022 was also revised higher to 11.97 MMBbl/d from an earlier projection of 11.8 MMBbl/d, the EIA said in its monthly Short-Term Energy Outlook.
> “We expect downward price pressures will emerge in the middle of the year as growth in oil production from OPEC+, the United States, and other non-OPEC countries outpaces slowing growth in global oil consumption.” (EIA) < I don't agree with this. I think we will see a surge in demand for oil-based products of more than 2 million bpd over the next four months.

Natural Gas

The prompt-month Henry Hub (Mar' 22) contract is now trading 17.5c lower at $4.073
> The February gas-weighted heating degree day forecast decreased by 19 HDDs to 743 HDDs
> Lower-48 dry gas production has recovered strongly and is now near a year-to-date high 93.5 Bcf/d as production knocked offline from freeze-offs in the South Central region returns
> LNG feedgas demand is up by 0.56 Bcf/d this morning, near 12.3 Bcf/d, after posting a 1 Bcf/d + decline yesterday
> The EIA revised up their 1Q22 Henry Hub natural gas spot price forecast by 53c to $4.34/mmBtu in its latest STEO report < The winter ending storage volume will be the key for this year's natural gas and NGL prices. In my forecast models I have been using full year HH natural gas price assumptions of $3.50. When I update the models I will be raising my HH price assumptions to $4.25 for Q1 & Q4 and $3.75 for Q2 and Q3. That will raise my full-year HH price assumption to $4.00 for 2022. I will keep it at $3.50 for 2023.

Japan will divert LNG cargoes to Europe as concerns of a Russian invasion of Ukraine escalate (Reuters)
> The move comes after the United States and European allies had asked the country to step in and provide gas to ease supply crunch worries in the event of a Russian invasion
> It is still unclear exactly how much gas will be sent to Europe, but Russia supplies nearly 40% of Europe's gas; However, questions remain with regards to whether Europe has enough unused LNG infrastructure to absorb all of the cargoes
> On Tuesday, U.S. energy expert Daniel Yergin said that gas supplies to Europe would be more likely to be disrupted because of violence rather than Russia's political weapon

Trading Economics:
"WTI crude futures bounced back to $90 per barrel on Wednesday morning, after losing more than 3% in the past two sessions boosted by shrinking US crude and gasoline stockpiles. Data from the EIA Petroleum Status Report showed US crude inventories fell by 4.756 million barrels last week, against market forecasts of a 0.369-million-barrel rise. The report also showed crude stocks at the Cushing, Oklahoma, delivery hub declined for a fifth consecutive week and the most since the week ended October 22nd 2021 while gasoline inventories unexpectedly decreased for the first time in six weeks. Oil has been underperforming this week, pausing a 7-week rally, pressured from the resumption of Iran nuclear talks, which could revive an international nuclear agreement and allow Tehran's to pump more oil into markets."

EIA's detailed report showed a week-to-week increase in U.S. oil production of 100,000 bpd to 10,600,000 bpd for the week ending Feb 4, which compares to 10,800,000 bpd for the week ending 12-31-2021. EIA does round production to the nearest 100,000 and always remember that EIA weekly numbers, especially for production, are basically wild ass guesses. The most recent actual production numbers we have are for November, 2021 (11,753,233 bpd). U.S. oil production usually declines in January and February simply because well completions slow down and well freeze offs are common.

U.S. crude oil inventories are down to 26.6 days of supply and all refined product inventories are also under 30 days of supply.