Energy Prospectus

Opening Prices:
> WTI is down $0.50 to $88.04/bbl, and Brent is down $0.42 to $93.70/bbl.
> Natural Gas is down -13.8c to 7.984/MMBtu.

This is a "Roller Coaster Day". Remember that the "Paper Traders" control these prices.
At the time of this post: WTI is up $1.93 to $90.47 and HH gas is up $0.03 to $8.15

AEGIS Notes
Oil

Russia undercuts Saudi Arabia's oil price to compete with it, allowing Moscow to increase its market share in India, one of the biggest importers of crude (BBG)
> Russian barrels were cheaper than Saudi crude from April through June, with the discount widening to almost $19/Bbl in May
> While the discount of Russian oil to Saudi crude narrowed in June, a barrel of Russian oil still costs around $13 less on average than Saudi crude
> This made Russian oil more enticing for India to overtake China to become the biggest buyer of Russian oil
> India's oil imports from Russia surged to a record of around 950 MBbl/d in June
MY TAKE: Europe will not sanction India for buying Russian oil because they do a massive amount of trade with India. One more reason that Europe is going to lose the "Sanctions War".

Saudi Arabia and UAE stand ready to deliver a "significant increase" in oil output should the world face a severe supply crisis this winter (Reuters)
> According to a statement released after OPEC+ announced its output hike of 100MBbl/d, spare capacity was "severely limited availability" and needed to be kept in reserve in case of "severe supply disruptions"
> Saudi Arabia and the UAE, according to three sources, might pump "significantly more," but they would only do so if the supply crisis got worse
> It is believed that Saudi and UAE have a spare capacity of nearly 2MMBbl/d, and neither has produced more than their announced OPEC quota for more than a few weeks. < My take is that this is more of a myth than a reality. Yes, for a short period SA and UAE could put more oil from storage on the market, but only for a few month. The other members of the cartel are tapped out and several are on terminal decline.

Natural Gas

The EIA reported an injection of 41 Bcf yesterday, bringing total working gas in storage to 2,457 Bcf
> This injection was higher than the median estimate of 28 Bcf but within the survey range of 19-44 Bcf
> Total stocks are now 268 Bcf less than this time last year and 337 Bcf lower than the five-year average
> Expected power generation demand for August is trending lower due to weakening weather forecasts with gas demand for the week ending August 19 to be 67 Bcf/d, down from last week's demand of 73.2 Bcf/d

European gas storage is on track to meet the target but at a cost (Reuters)
> European countries are on track to reach a gas storage filling target by the start of this winter, but the cost of replenishing stocks will be over $51 billion, 10 times more than the historical average of filling up tanks for winter
> They have managed to build up gas storage steadily by curbing demand, switching from gas to coal for some power plants, and increasing imports of liquefied natural gas
> Ramped-up LNG imports have helped. The EU imported 21.36 million tonnes of LNG in the first half of 2022, up from 8.21 million tonnes in the same period a year ago
> European gas storage levels were 70.54% full on Tuesday, surpassing the 5-year average of 70.32%

MY TAKE: Soon after the Freeport LNG Export Facility comes back online in October, we will see a bidding war between U.S. utilities for physical supply. My guess is that HH ngas goes over $10 in Q4 and much higher if we have a colder than normal December. La Nina winters are colder than normal, but they usually start later. This is the second La Nina in a row and back-to-back La Ninas have produced some of the coldest winters on record for the eastern U.S.

Thanks for the insight on "behind the scenes" with sanctioned Russian oil. Good explanation of why sanctions seldom work. Politicians love the virtue signaling. Economics will eventually trump political grandstanding.

Closing Prices:
> Prompt-Month WTI (Sep 22) was up $0.47 on the day, to settle at $89.01
> Prompt-Month Henry Hub (Sep 22) was down $-0.058 on the day, to settle at $8.064

If the U.S. really added over 500,000 new jobs last month, there is little chance that gasoline demand has gone down.

Focus on the deficits to the 5-year average. Diesel shortage s/b a big concern. All space heating fuels (natural gas, propane and heating oil) are too low to make it through a colder than normal (La Nina) winter.

This is what the EIA reported on Wednesday for the week ending July 29th:

> U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.5 million barrels from the previous week. At 426.6 million barrels, U.S. crude oil inventories are about 7% below the five year average for this time of year.
> Total motor gasoline inventories increased by 0.2 million barrels last week and are about 3% below the five year average for this time of year. Both finished gasoline inventories and blending components inventories increased last week.
> Distillate fuel inventories decreased by 2.4 million barrels last week and are about 25% below the five year average for this time of year. < We have to be getting close to diesel rationing.
> Propane/propylene inventories increased by 1.8 million barrels last week and are about 11% below the five year average for this time of year.
>> Total commercial petroleum inventories increased by 3.5 million barrels last week.

The only reason Saudi is increasing exports is because they bought Russian oil for internal use thus freeing up the oil they would of burned from their own inventory.

So they buy 19 off and the Saudis indirectly reselling it at face

India buys the cheap Russian oil , refines it, and reexports it capturing huge margins.

“Indian refiners are going to try and get their hands on the cheapest crude possible that works with their refinery and product configurations,” Bloomberg quoted oil market analyst Vandana Hari as saying.

In May, according to Bloomberg calculations, Russian oil sold for $19 less per barrel than Saudi crude, which narrowed in June to $13 per barrel.