Energy Prospectus

Opening Prices:
> WTI is down $0.61 to $102.12/bbl, and Brent is down $0.36 to $104.29/bbl. < WTI was up $0.91 to $103.64 at the time of this post.
> Natural gas is down -0.9c to $6.288/MMBtu. < HH ngas was down $0.15 to $6.15 at the time of this post.

AEGIS Notes
Oil

U.S. Treasury Secretary Janet Yellen travels to Asia next week to meet with officials of Japan, South Korea, and other G20 economies. (Reuters)
> Yellen intends to head to Asia to gain support for a proposed price cap on Russian oil
> While the European Union is preparing to implement a phased embargo on Russian oil, Yellen is reportedly in favor of a price cap as a method to avoid future price hikes that might prompt recessionary behavior

U.S. crude stocks climbed by a massive 8.23 MMBbl in the week ending July 1 to 423.8 MMBbl, according to EIA < The gain in commercial oil inventories was primarily from the SPR and imports.
> Nationwide gasoline inventories fell 2.5 MMBbl to 219.11 MMBbl over the same period
> Distillate stocks also saw a draw of 1.27 MMBbl to 111.14 MMBbl for the week ending July 1
> Product supplied for gasoline, the EIA's proxy for demand, climbed to a year-to-date high of 9.41 MMBbl/d, while product supplied for distillates surged 810 MBbl/d to 4.38 MMBbl/d, a 15-week high, and more than 16% above the five-year average

Asian refiners have already secured significant volumes of U.S. oil since demand is growing in Asia because of good margins (BBG)
> Three buyers in South Korea and Japan snatched up around 8 MMBbl of U.S. oil for arrival in October < Why is the U.S. sending oil from the Strategic Petroleum Reserves to Asia, with at least a million barrels ending up in China?????
> This was followed by increased costs for equivalent Middle Eastern substitutes like Abu Dhabi's Murban, which last week hit a record premium over U.S. oil futures

Natural Gas

Natural gas futures are trading 0.9c lower this morning, near $6.288
> Gas prices have come under heavy selling pressure over the last two weeks but pared some losses this week. The prompt-month contract is up by 56.7c or 9.90% this week.
> Yesterday's reported 60-Bcf injection was well below the average analyst estimate of 75 Bcf
> Yesterday's stat was very surprising because it comes after analysts missed the previous two storage prints by an average of +10 Bcf to the bear side. The previous two misses have caused speculation that production is back up, but yesterday's storage print threw a wrench in that theory
> The weather forecasts have tilted warmer, which has also helped gas prices strengthen. The gas-weighted cooling degree day total for the U.S. is up by 8 CDDs on the week at 374.2 CDDs, its highest mark yet
> Production has also remained steady after showing signs of increasing. U.S. lower 48 dry gas production touched a year-to-date high two weekends ago but has failed to return back to the 97.3 Bcf/d year-to-date high < My take is that upstream companies unchoked (open the values a bit) to take advantage of the ngas price spike prior to the Freeport LNG facility shutdown.

Germany expects Canada to release a critical Russian pipeline part caught up in sanctions
> The turbine, built in Canada by Siemens Energy AG, was sent to Montreal for repairs but became stranded due to sanctions on Russia's oil and gas industry
> Releasing the turbine could potentially de-escalate the gas standoff between Russia and Germany --and help increase flows that have been drastically curbed for weeks
> Dutch TTF prices ($54.78/MMbtu yesterday) are up 50%+ since the beginning of June; however, gas prices fell about 6% following news that the part may be returned

At 11:40 AM CT the price of WTI was up $1.78 to $104.51

OilPrice.com
"Tuesday’s oil price collapse might go down as one of the most memorable moments of the oil market’s tumultuous year of 2022. Despite being the third-largest daily loss since the onset of oil exchanges, declining crude did not trigger any changes along the futures curve, implying that the huge drop was primarily coming from widespread profit-taking as primarily non-physical participants panicked at the prospect of recession hitting the markets sooner than expected. The (inventory) balances, however, do not lie – we are still living in times of extremely tight supply and even though it might take some time, the physical side of the equation will push prices back (up) soon."

MY TAKE: The daily prices for oil and gas you see reported are the front month NYMEX futures contracts for WTI oil to be delivered to Cushing, Oklahoma and natural gas going to Henry Hub, Louisiana. The front month contracts are now August 2022. U.S. commercial crude oil inventories are10% below normal for this time of year, but still within the 5-year range. What's supporting oil prices are the extremely low refined product inventories. U.S. Gasoline and Distillates inventories are all below the 5-year range. Diesel prices are high and likely to remain much higher than gasoline prices. If a hurricane shuts down some refineries for just a few day, we will likely see fuel rationing. Keep your tanks full.
OECD Petroleum inventories are lower on Days of Consumption than I have EVER SEEN.

Closing Prices:
> Prompt-Month WTI (Aug 22) was up $2.06 on the day, to settle at $104.79
> Prompt-Month Henry Hub (Aug 22) was down $-0.263 on the day, to settle at $6.034

MY TAKE: The July 5th oil price drop was totally based on FEAR of a recession. A few big "Paper Traders" hit the sell button and it triggered a lot of computer generated sales. Coming off the holiday there was very little news to support the FEAR. WTI is now almost back to where it closed on July 1. There is still a BIG fundamental reason we have WTI and Brent in triple digits > This world is out of spare supply capacity.

Unless Putin pulls his troops out of Ukraine and all sanctions against Russia are dropped, the global oil market is going to remain under-supplied. IMO we are one more Geopolitical hit to supply from a run at $150/bbl. BTW we are just two months away from the PEAK OF HURRICANE SEASON.[/b]