Energy Prospectus

Opening Prices
> WTI is up $0.04 to $114.24/bbl, and Brent is up $0.23 to $114.47/bbl.
> Natural gas is up 29.1c to $8.247/MMBtu.

AEGIS Notes
Oil

Oil prices have risen to their highest mark in seven weeks this morning
> EU foreign ministers failed to persuade Hungary to lift its veto on a proposed oil embargo against Russia on Monday
> For the third day in a row, Shanghai reported no new Covid-19 infections in the city’s communities, marking a significant milestone that authorities say will allow them to begin loosening restrictive measures
> Shanghai authorities plan to permit a broad reopening of the city with 25 million residents on June 1, which might prompt a rebound in China’s oil demand

Retail gasoline prices in the U.S. have topped $4.523/gal for the first time, just a couple of weeks ahead of summer driving season (AAA)
> On-highway diesel prices reached a new high of $5.573/gal < Diesel "Rationing by price" is now in full swing and we may see physical rationing in early Q3.
> Many analysts are expecting the weekly inventory reports to show a decline in inventories of distillates and gasoline for the week ending May 13

The EIA released its May Productivity Drilling Report yesterday, forecasting Permian production of 5.22 MMBbls/d (+0.88 MMBbls/d) in June
The Bakken and Eagle Ford are forecast to rise significantly in June, reaching 1.18 MMBbls/d and 1.17 MMBbls/d, respectively

Natural Gas

Natural gas futures are up by around 29.1c, near $8.247 < JUN22 contract at $8.33 at the time of this post. Raymond James official forecast is that HH gas will average $9.00 in Q3 and $9.25 in Q4. With a hot summer we may see HH gas well over $10.00 in early Q4.

This morning’s rally is largely focused in the front of the curve and is likely being driven by weather forecast changes and the large drop in production
> The lower-48 pop-weighted temperature for the 1-15 day range increased by 8.7°F, primarily driven by warmer temps in the Northeast and Rockies regions in the 11-15 day range

This morning’s pipeline nominations show lower-48 dry gas production is down again by 1.60 Bcf/d week-over-week at 94.57 Bcf/d
> Feedgas demand is down at around 12.5 Bcf/d. Cameron LNG flows increased by 0.3 Bcf/d, but the facility still has a train down for maintenance that should last until around May 20.
> Corpus Christi LNG nominations are reduced still, near last year’s maintenance level, according to Criterion Research

Total Permian oil output will hit record in June – EIA
> Oil output in the Permian, the biggest U.S. shale oil basin, is due to rise by 88 MBbl/d to a record 5.219 MMBbl/d in June, according to the EIA’s Drilling Productivity Report < Just another EIA Wild Ass Guess, but it should be going up.
> EIA data shows that Permian natural gas production will also rise by around 169 MMcf/d
> So far, in 2022, the number of gas-directed drilling rigs has increased by 38%, to 146. Some analysts project the Permian rig count to hit 400 by the end of the year < More than half of the active drilling rigs are running in the Permian Basin.

AEGIS notes that the Permian is an oil-focused basin that produces almost 14.8 Bcf/d of gas, making it the third-largest gas-producing basin behind the Marcellus/Utica and Haynesville basins.
> Historically, gas production has increased by around 2.7 Bcf/d per 1 MMBbl/d of oil production growth, but that number is closer to 3.2 Bcf/d per 1 MMBbl/d of oil production today, thanks to a reduction in flaring since the last oil production growth cycle
> AEGIS notes that Waha basis prices could come under pressure if production rises and exceeds current takeaway capacity.

Trading Economics:

"WTI crude futures rose for the fifth straight day to around $115 per barrel on Tuesday, approaching a 14-year high of $125 hit in March, as traders tracked developments around a proposed EU ban on Russian oil, a move that would tighten global supply further. On Monday, EU foreign ministers failed to convince Hungary to lift its veto on the oil embargo on Russia and some diplomats see a May 30-31 summit as the moment for an agreement. Meanwhile, fuel demand is set to recover in China after Shanghai has set out plans for the end of a painful Covid-19 lockdown on June 1st. Still, the latest data showed China processed 11% less crude oil in April than a year ago. The US oil benchmark has been rising at a faster pace than Brent, and the pair is now trading near parity, as US gasoline prices surged to record highs on rising demand coupled with restrained refining capacity."

"US natural gas futures regained ground and consolidated around the $8/MMBtu mark, not far from an almost 14-year peak of $9 touched earlier this month, as investors continued to monitor the outlook for US LNG exports against a backdrop of tight domestic supplies. The Kremlin sanctioned Gazprom Germania, a former Gazprom subsidiary now in control of German regulators, and the Polish grid operator who controls natural gas transits between Belarus and Germany through the Yamal-Europe pipeline. Additionally, Ukraine has shut down one of its two entry points, further pushing the EU to rely more on US LNG cargoes for its supplies. Domestically, EIA data showed utilities injected a smaller-than-estimated 76 bcf into storage in the week ending May 6th, below the 5-year average build of 82 bcf. Gas production growth in crucial locales in the US has slowed in 2022 due to insufficient pipeline capacity, while lousy weather also cut production and boosted demand." < Thanks to Team Biden's war on U.S. oil & gas production, we lack the infrastructure necessary to bring enough gas to market to refill storage before the next winter arrives. Therefore, U.S. consumers will have to pay A LOT MORE to heat their homes during the next winter.