Energy Prospectus

Opening Prices
> WTI is down $2.43 to $107.34/bbl, and Brent is down $2.33 to $110.06/bbl.
> Natural gas is down -3.0c to $8.013/MMBtu.

AEGIS Notes: G7 nations pledge to ban Russian oil imports

Crude Oil

Oil and equity futures were down Monday morning following reports of new sanctions on Russian oil & gas exports
> G7 countries pledged to ban Russian oil imports on Sunday
> A conference of the EU's 27 ambassadors on a ban on Russian oil imports ended without agreement yesterday, with Hungary still opposed to the plan
> USD hit a fresh two-decade high making crude more expensive for holders of other currencies

Saudi Arabia, the world's biggest oil exporter, cuts June oil prices by almost $5/Bbl from record highs for Asia and Europe
> Arab Light crude grade premiums for June's shipments to Asia dropped to $4.40 a barrel from $9.35 in May
> COVID-19 lockdowns in China have persisted and weighed on crude demand on top of uncertainty regarding Russian supplies

China's oil imports are rising on increased tanker supply from Russia
> China's crude imports are at a 3-month high
> The nation received 10.51 million barrels a day, of crude last month up 4% from March (BBG)
MY TAKE: China cannot keep millions of citizens in lockdowns forever. Their economy and demand for oil will rebound.

Natural Gas

The prompt-month (Jun' 22) gas contract is down by 3c this morning, near $8.013
> Lower-48 dry gas production hit 94.75 Bcf/d over the weekend, a year-to-date high, before backing back down to 94.35 Bcf/d this morning. According to Criterion Research, the Appalachian region is responsible for most of the gains
> LNG feedgas demand is down at around 11.9 Bcf/d. Cameron LNG has a train down for maintenance that should last until around May 20
> Calcasieu Pass feedgas volumes are at a fresh record-high of 1.04 Bcf/d

Canadian LNG industry sees a rush of activity following the European ban on gas imports (Reuters)
> The Canadian government is in discussion with two companies responsible for the proposed LNG export facilities to see how it can speed up construction to get gas to Europe
> Canada only has one facility on its west coast and none on its east coast. Pieridae is proposing a 2.4 megatonne per annum export facility.

Enbridge also outlined expansion plans as global demand for LNG has soared
> "LNG exports are a big opportunity, with momentum building across the U.S. Gulf Coast, and now more so in western Canada," Enbridge Chief Executive Al Monaco said on Friday's earnings call
> The executive also pointed out that the company already supplies around 2 Bcf/d of gas to four LNG plants on the Gulf Coast and inked agreements to supply three more facilities that could add up to 7 Bcf/d of gas

AEGIS notes that new LNG facilities in Canada would result in a tighter supply-demand balance for the United States as it has the ability to absorb Western Canadian gas that may have otherwise been imported cheaply by the U.S. via pipeline

Trading Economics:
"WTI crude futures tumbled more than 6% to around $102-per-barrel, under pressure from a stronger dollar and lingering concerns about weakening global demand, particularly from top consumer China due to tightening lockdowns. Recent customs data showed that crude imports by the world's second-largest economy fell 4.8% in the first four months of 2022 compared with last year. On top of that, European Union countries struggle to agree on a ban on Russian oil. Some countries, such as Hungary and Slovakia, are concerned about the repercussions of such a move on their economies. Meanwhile, investors also assessed Saudi Arabia's move to cut prices for buyers in Asia and Europe for June."

"US natural gas futures slipped below $7.1 per million British thermal units, almost 21% below a fourteen-year high of $8.98 in the previous session, amid some profit taking after temperatures in the south-central region didn’t climb as high as expected. Still, the contract is up roughly 100% so far this year as production remained sluggish amid seasonal maintenance work and unusual Spring freeze-offs and was set for the fifth monthly decline in a row. Meanwhile the consumption of LNG exporting facilities averaged 12.3 bcfd so far in May, up from 12.2 bcfd in April and close to the full capacity level of 13.2 bcfd, boosted by demand in Europe as the region tries to wean off Russian supplies. The combination of late wintry weather, soaring overseas demand and insufficient supplies is offsetting efforts by utilities to inject natural gas into underground storage, which currently sit 17% below the 5-year average."

MY TAKE: FEAR of the Fed, a rising U.S. dollar and non-stop headline "noise" keeps oil traders on edge. Fundamentals remain bullish and petroleum inventories are not getting back to normal anytime soon. Weather is the primary driver for natural gas prices and the outlook is for a cooler temps in the Southeast but HOT and DRY in the middle of the country. Weekly ngas storage reports should be at or below average builds as long as LNG exports remain near capacity.

Closing Prices:
> Prompt-Month WTI (Jun 22) was down $-6.68 on the day, to settle at $103.09
> Prompt-Month Henry Hub (Jun 22) was down $-1.017 on the day, to settle at $7.026

Oil & gas prices used in all of my forecast/valuations are as follows, adjusted for regional differentials and each company's hedges
WTI crude oil: $100 in Q2, $110 in Q3, $100 in Q4 and $90 in 2023.
HH natural gas: $6.00 in Q2 and Q3, $6.50 in Q4 and $5.00 in 2023.