Energy Prospectus

This is the year of the Roller Coaster. Buy the dips because the Macro fundamentals for oil, gas and NGLs are VERY STRONG.

Opening Prices:
> WTI is up $3.51 to $103.27/bbl, and Brent is up $3.11 to $105.57/bbl.
> Natural gas is up 11.4c to $7.499/MMBtu.

AEGIS Notes: "Oil rebounds as COVID infections ease in China | Gas continues to rebound"
Crude Oil

WTI pares some losses after plunging almost 10% this week
> Libya's parliament-backed prime minister said oil fields and ports could reopen soon
> Libyan oil production has been cut by 50% to 600 MBbl/d from 1.3 MMBbl/d in the last month due to shutdowns
> Hungary's public stance against the EU’s embargo on Russian imports has tightened, with the country insisting it will only withdraw its veto threat if pipeline imports are excluded

Shanghai reported a 51% drop in new COVID cases
> Zero cases were reported in the community, according to Shanghai, as all cases were detected among those already in quarantine
> Restrictions on movement, known as the "Zero COVID" policy, have stoked fears of a growth slowdown in the world's largest petroleum importer
MY TAKE: China's leadership knows they cannot keep millions of citizens in lockdown forever. Plus, lockdowns don't work. China's oil demand will be ramping up at the same time the global demand for transportation fuels ramps up. Oil demand is "seasonal" and it peaks June to September each year.

The EIA cut its forecast for US crude output in 2022 from 12.0 MMBbl/d to 11.9 MMBbl/d in its latest Short-Term Energy Outlook
> The 2023 average output estimate was 12.85 MMBbl/d vs 12.95 MMBbl/d
> The EIA also forecasted that in 2022, U.S. demand for petroleum and other liquid fuels will increase by 3.7 %, down 0.3 % from April's forecast

Natural Gas

Natural gas futures are up by around 11.4c, near $7.499
> Prompt-month (June ’22) gas jumped $1 to limit yesterday’s losses to bring the total losses from Friday $8.04 settle, to -6.2% or 50c lower
> This morning’s pipeline nominations show lower-48 dry gas production is down by around 0.55 Bcf/d at 94.7 Bcf/d, or 1.4 Bcf/d lower over the last two days
> Production has weakened significantly over the last several days and is now 1.55 Bcf/d removed from its near year-to-date high of 96.25 on Saturday, May 7
> Pipeline gas exports to Mexico have been ticking higher as summer approaches, rising to 6.6 Bcf/d, which is almost flat year-over-year
> Feedgas demand is down at around 12.2 Bcf/d. Cameron LNG has a train down for maintenance that should last until around May 20
> Calcasieu Pass feedgas volumes set a fresh record-high of 1.14 Bcf/d

Venture Global reaches twin long-term offtake contracts with ExxonMobil (NYSE: XOM)
> The company inked two 20-year sale and purchase agreements for a total of 2 MM metric tons/yr or 0.262 Bcf/d
> The agreement specifies that the company may split its sales with 1 MM metric tons/yr (0.131 Bcf/d) coming from both its facilities, the Plaquemines LNG facility and Calcasieu Pass LNG Terminal (Phase 2)
> Venture Global has inked offtake deals for 15 of 20 MM metric tons/year of proposed capacity at Plaquemine LNG, and the project could be sanctioned soon, according to Venture Global
> The company has inked two supply deals for Calcasieu Pass Phase 2 (CP2), but has not sanctioned the expansion yet
Has AOC approved this???

MY TAKE: I am sticking with my prediction that The Mother of All Bidding Wars will take it to a new level in Q3 and we will see HH gas trading for more than $10/MMBtu within a few months.

AOC approved no, but she will get back with a windfall profit tax

Trading Economics
Oil
"WTI crude futures jumped more than 6% to approach $106 a barrel on Wednesday, after sinking almost 11% in the previous two sessions, amid prospects of strong oil demand after coronavirus cases in China declined while the EU continues to work to move ahead with an embargo on Russian oil. Meanwhile, US crude inventories rose by 8.487 million barrels in the previous week, the most in four weeks, and compared to forecasts of a 0.457 million barrels decrease, EIA data showed. Oil markets have been volatile in recent weeks but prices are up more than 30% for the year."

Natural Gas
"US natural gas futures rose to above $7.6 per million British thermal units on Wednesday as traders continued to monitor supply and demand prospects amid high volatility. Demand from LNG exporting facilities is expected to further rise on supply disruptions in Europe after Ukraine’s state-owned grid operator suspended Russian flows through a key Sokhranivka entry point on Wednesday morning due to unforeseeable circumstances that prevent the fulfillment of a contract. On the other hand, data showed US output rebounded slightly, averaging 94.3 billion cubic feet a day at the start of the week, up from an average of 93.2 bcfd in the first week of May. Also, the Spring weather could help utilities inject more fuel into storage, which currently sits at 17% below historic levels."

Coal
"Newcastle coal futures, the benchmark for top consuming region Asia, consolidated above the $380-per-tonne mark and more than doubled in value since 2022, supported by continued robust demand against a tightening market backdrop. Along with increasing demand for power generation with a resumption in economic activity after the coronavirus-induced slump, soaring natural gas prices in Europe and Asia in late 2021 boosted coal consumption. On top of that, Russia's invasion of Ukraine and the unprecedented economic sanctions, including the EU's ban on coal imports from Russia, have thrown the global energy market into chaos. At the same time, it also promoted a change in trade flows as the EU and Japan sought alternative supplies from Australia, Colombia, Indonesia, South Africa, and the United States. Still, soaring production from top consumers China and India should ease a global supply deficit and help cool down prices in the long term."

Closing Prices:
> Prompt-Month WTI (Jun 22) was up $5.95 on the day, to settle at $105.71
> Prompt-Month Henry Hub (Jun 22) was up $0.255 on the day, to settle at $7.640

Here is the fundamental reason that oil and gas prices are going to stay high and we should all be buying the dips: U.S. and OECD petroleum inventories (crude oil and refined products) are WAY BELOW where they should be this time of year. This is a "Structural Change" and there is no QUICK FIX. China can't keep millions of people in lockdown. Their economy is just like ours, they must have oil based products to support grow and support a decent standard of living. There is NOTHING that will change this fact.
OPEC+ has no spare capacity that they can bring to the market to rescue us this time.