Energy Prospectus

Opening Prices:
> WTI is up $1.05 to $96.03/bbl, and Brent is up $0.95 to $105.35/bbl.
> Natural gas is down -30.3c to $8.69/MMBtu.

AEGIS Notes
Oil

The Biden administration stated yesterday that it will sell an additional 20 MMBbl of crude for the SPR as part of the previous plan announced in the spring to curb rising energy prices
> The initial plan called for a record 1 MMBbl/d to be released from the SPR for six months; the U.S. has already sold 125 MMBbl from the SPR, and another 70 MMBbl has already been sent to buyers
> The DOE will begin taking bids this fall to start the process of buying back 60 MMBbl of crude to restock inventories, and it is expected to soon propose a rule to allow for entering forward contracts to buy the crude in future years at fixed, present rates
> "That sounds technical, but what it means in practice is that producers would have more certainty about future demand for their product and that would encourage investment in production today," an administration official said
> He also added that oil purchases to replenish the SPR will not be competing with demand for oil in the near term as they will likely take place after FY2023 < IMO this is likely to extend high oil prices through at least 2024.

China’s Covid-19 infections rebounded, with an increase in cases in the south threatening the operations of major companies (BBG)
> An average of 886 cases per day were reported in China in the last week, according to the NY times
> Concerns about disruptions to global supply chains are growing as attention turns to the southern manufacturing hub of Shenzhen, where 19 local cases were detected
> Authorities ordered some of China's largest companies, including iPhone manufacturer Foxconn and oil producer Cnooc Ltd., to restrict operations and operate in a "closed loop" system for seven days
MY TAKE: Compared to China's population of more than 1.5 billion people, the number of cases seems tiny to me. Unless "Cases" turn into "Hospitalizations" and "Deaths" does this warrant shutdowns? Or is it a tactic to keep oil prices lower for longer?

Natural Gas

Natural gas prices are down 3.26% this morning, trading around $8.70
> Yesterday saw the price rally to $9.73 before falling back below $9
> The weather forecast has shifted slightly cooler, although the week ending August 12 is expected to be the second hottest of the summer with temperatures above the 10-year average
> Production fell slightly with a net decrease of 0.6 Bcf/d, while LNG feed gas nominations fell by 0.7 Bcf/d
> August NYMEX Henry Hub futures expire today < Short covering is why the price spiked yesterday.

Gas crisis pushes Europe toward recession amid industrial production cuts
> Germany's BASF, the world's largest chemical company, is cutting ammonia production further due to soaring natural gas prices
> Chemical companies are the biggest industrial natural gas users in Germany and ammonia is the single most gas-intensive product within that industry. During normal times, ammonia production accounts for about 4.5% of the natural gas used by the German industry
> EU energy ministers agreed in principle to cut gas use by 15% from August to March, but officials said a 15% cut in Europe's gas consumption, along with a surge of global LNG exports to Europe, including from the US, is unlikely to be enough to offset the shortages

Reuters: Oil rises on U.S. inventory drop, Russian gas cuts.
Oil rose by $2 a barrel on Wednesday as a report of lower inventories in the United States and cuts in Russian gas flows to Europe offset concern about weaker demand and a looming U.S. interest rate hike. Industry group the American Petroleum Institute said on Tuesday crude stocks fell by 4 million barrels, four times the forecast decline.
"Coupled with the Fed decision on interest rates, today is sure to be a heavy U.S.-centric session," said Stephen Brennock of oil broker PVM. Oil has soared in 2022, reaching a 14-year high of $139 a barrel in March after Russia's invasion of Ukraine added to supply worries and as demand recovered from the pandemic. Gas flows through the Nord Stream 1 pipeline fell to a fifth of the pipeline's capacity on Wednesday, while Italy's Eni said it will receive lower volumes from Russia's Gazprom.

Trading Economics: WTI crude futures whipsawed back towards $98 per barrel on Wednesday, as traders digested inventory levels against a background of uncertainty over the demand outlook. Government data showed US crude oil inventories shrank by more than 4 million barrels last week, much more than median estimates of a million barrel draw and confirming industry figures released Tuesday. Also, the 3.3 million-barrel draw in gasoline stocks easily beat estimates of a 0.9 million barrel decline. Adding to the bullish sentiment are concerns that reduced gas supplies from Russia to Germany through the Nord Stream 1 pipeline would force a switch to oil. On the supply side, the White House announced the sale of an extra 20 million barrels of oil from strategic reserves. Lastly, caution prevailed ahead of the Federal Reserve’s expected 75 bps rate hike later in the day, amid persistent fears about a possible looming recession.
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MY TAKE:
> If the FEAR of a recession proves to be worse than the actual economic slowdown, the price of oil has a lot more upside. The global oil market is under-supplied today and we can't keep draining the SPR to make up the difference.
> Natural gas prices are the stunning surprise this year. At the end of the last winter heating season in April, ngas storage was below the 5-year average and my HOPE was that HH gas prices would hang on in the $5.00 range. Here we are testing resistance over $9.00 in July. AR and EQT report Q2 results after the markets close today. Their comments will be listened to carefully by the Wall Street Gang.
> The big gap between WTI and Brent is something to watch. Louisiana Light oil normally sells close to Brent, so TALO s/b getting a nice premium for their oil. Eagle Ford producers also get a premium to WTI when Brent is this high. This is because they compete directly with imported oil coming into the Gulf Coast.

Closing Prices:
> Prompt-Month WTI (Sep 22)was up $2.28 on the day, to settle at $97.26
> Prompt-Month Henry Hub (Aug 22) was down $-0.306 on the day, to settle at $8.687 < As I posted here several times this week, I think the big spike in ngas prices on Monday was a "Short Squeeze" on the paper traders that caught hanging on too long to their positions. SEP22 is now the front month. If it hangs on to just half of the price spike it will be very bullish for our "gassers".

RISK: If you decide to trade actual commodity futures contracts, I recommend you be extremely careful and never hold until close to the contract expiration date. There are trading "professionals" that take advantage of greedy rookies. Nearly 40 years ago when I was working for a large CPA firm, I had a client that "forgot" that he purchased some cattle and egg futures. I lost his ass on that dumb move.