Energy Prospectus

Opening Prices:
> WTI is down $3.95 to $100.74/bbl, and Brent is down $5.91 to $103.43/bbl.
> Natural gas is up 11.5c to $7.359/MMBtu.

AEGIS Notes
Oil

WTI futures fell nearly 3% as data revealed a significant economic decline in China, the world’s top crude importer
> As extensive COVID-19 lockdowns interrupted industrial production and disrupted supply chains
> The National Bureau of Statistics said that the Purchasing Managers Index (PMI) decreased to 47.4 in April from 49.5 in March, marking the second consecutive monthly decline, the lowest since February 2020
> According to estimates from the Japanese bank Nomura, 345 million people are under complete or partial lockdown in 46 locations (Financial Times)

Germany is prepared to back a phased embargo on Russian oil in the European Union (BBG)
> Only 12% of Germany's oil imports are coming from Russia now, down from 35% before the conflict according to the German Economy Ministry
> Hungary and Slovakia oppose sanctions that would limit Russian energy imports
> EU is expected to decide on the sixth set of sanctions against Russia for its actions in Ukraine on Tuesday

Natural Gas

The prompt-month (Jun' 22) gas contract is up by 11.5c this morning, near $7.359
> Lower-48 dry gas production is up down by 0.3 Bcf/d from Friday's levels at 93.3 Bcf/d, as losses in the South Central offset gains in the Bakken, Appalachian regions
> Canadian imports are up by 1.1 Bcf/d year-over-year at around 8.2 Bcf/d
> LNG feedgas demand is at around 12.2 Bcf/d. Freeport LNG feedgas flows are still reduced, but maintenance has wrapped up on Train 1
> Calcasieu Pass feedgas volume are holding near their record-high of 1 Bcf/d
> Weather forecasts tilted warmer, with the U.S. expected to switch from HDDs to CDDs on May 11, according to Criterion Research

U.S. natural gas production growth slows as demand grows (Reuters)
> The United States, the world's largest producer of natural gas, has been slow to increase production, staying below its December 2021 high, despite the increased need for the fuel globally
> Companies have blamed a lack of adequate pipeline infrastructure in the Appalachian and West Texas regions
> Pipelines in the Permian, the nation's second-largest source of gas, are filling quickly and may be at capacity by 2023, according to Reuters analysts
> Appalachia "is nearing takeaway capacity limits," said analysts at Bank of America, who estimated there would be "little to no production growth" until new pipes enter service
> AEGIS notes that the Haynesville could see some growth, with the region's gas-directed drilling rig count at its highest in over ten years

MY TAKE:
> I highly recommend that all of you listen to the first 15 minutes of the Q1 conference calls from AR, EQT and RRC. All of the CEOs explain why Appalachian gas (Marcellus & Utica) cannot increase much because of inadequate pipeline takeaway capacity.
> Of our "gassers" Comstock Resources (CRK) and SilverBow (SBOW) have the most near-term potential to increase gas production.

Trading Economic at noon ET

OIl
"WTI crude futures erased most losses to trade around $104 per barrel on Monday, after falling over 3% to as low as $100.4 earlier in the session as investors continued to weigh between a bullish supply outlook and a bearish demand picture. Data released over the weekend showed factory activity in China contracted for a second month to its lowest since February 2020 due to Covid lockdowns, which, in turn, also exacerbated concerns about weak demand. Adding to bearish sentiment, Libya’s National Oil Corp said Sunday it would temporarily resume operations at the Zueitina oil terminal after suspending operations in late April due to political protests. Meanwhile, the EU is reportedly leaning toward a ban on Russian oil imports by year-end after discussions over the weekend. Around half of Russia’s 4.7 million barrels per day of crude exports go to the EU, supplying about one-fourth of the EU’s oil imports in 2020."

Natural Gas
"US natural gas futures hit a two-week high of $7.536 per million British thermal units, as traders continued to assess maintenance-related outages and strong demand prospects. Above-average demand lingered in the eastern states amid remnants of chilly weather, while output continued to face volatility amid the ongoing maintenance season and the recovery from freeze-offs in the Rockies in late April. Elsewhere, the US continues to ship high volumes of LNG to Europe, which is expected to keep export facilities running at near full capacity due to the war in Ukraine and the risk of supply disruptions from Moscow to the region amid the euro payments spat. Lastly, EIA data showed a 40 billion cubic feet injection into domestic storages in the week ended April 22nd, less than the 5-year average build of 53 bcf, widening the gap between current stocks and the 5-year average levels."

U.S. oil production has been falling since November, 2021. Winter weather does impact oil production. This is based on actual data from the EIA's monthly 941 report, which is our first look at REAL production data. EIA's weekly reports are just their Wild Ass Guess.

"According to EIA data, U.S. crude oil production dipped in February to an average of 11.312 million barrels per day—a 457,000 bpd decline from November 2021. January’s average monthly production was also down to 11.362 million bpd compared to 11.604 million bpd on average in December. The monthly data shows that production has been declining since November 2021. And data shows that U.S. production is still a far cry from where it was in 2019 before the pandemic."

I do expect U.S. oil production to gradually increase, but we are not getting back to pre-pandemic production of 12.860 million bpd this year and maybe not in 2023.

Closing Prices:
> Prompt-Month WTI (Jun 22) was up $0.48 on the day, to settle at $105.17
> Prompt-Month Henry Hub (Jun 22) was up $0.231 on the day, to settle at $7.475 < This is truly incredible!

If HH natural gas averages more than $7.00 through the winter, all of our gassers are going to report a "stunning" increase in the PV10 value of their proved reserves as of December 31, 2022.