Energy Prospectus

Opening Prices:
> WTI is up $0.02 to $89.43/bbl, and Brent is down $0.18 to $94.92/bbl.
> Natural gas is up 49.6c to $9.224/MMBtu. < Let this sink in: We are looking at the natural gas price in the United States in mid-August!

AEGIS Notes
Oil

Iran confirmed today that it sent a response to the EU as the last step in re-establishing the nuclear agreement with the U.S.
> EU members said they are studying Iran's response and discussing it with the U.S. on a "way ahead" basis
> There are still disagreements on three issues, and the U.S. has shown flexibility on two of them. The third issue relates to ensuring that the agreement will continue, said IRNA, Iran's state-run news agency

Oil production is expected to grow at a slower pace in the biggest U.S. shale field
> Output from the Permian Basin, which spans Texas and New Mexico, is forecast to grow 1.5% in September to 5.41 MMBbl/d, down from 1.6% in August, according to EIA's drilling productivity report < From the same agency that overstated U.S. oil production each week in April and May, which I showed you on slide 5 of my Saturday podcast.
> Production in July rose 1.7% to reach an all-time high of 5.33 MMBbl/d

Natural Gas

Natural gas in Southcentral Alaska may be running down (Frontiersman)
> In 2005 Cook Inlet was producing over 200 bcf of gas yearly. That had dropped to 102 bcf in 2015; 83 bcf in 2018; 78.4 bcf in 2020 and 76.8 bcf in 2021
> The gas fields were aging, and the rapid drop from 2012 to 2016 was a major factor in the loss of gas-related manufacturing plants on the Kenai Peninsula
> There are, as yet, no big new discoveries and no major new exploration efforts, at least based on lackluster results in a state Cook Inlet lease sale held last spring
> A $40 billion North Slope gas pipeline, once seen as the ultimate solution by tapping large gas reserves on the slope, seems indefinitely on hold

Mexico plans to be an LNG export hub with U.S.-drilled natural gas (Bloomberg)
> While Mexico does not export any of its gas, as it produces too little to supply its own power generation needs, the country’s proximity to the U.S. positions it well to supply gas to Europe and Asia
> A total of eight LNG export projects have been proposed in Mexico, with an annual combined capacity of 50.2 million tons, with some of the projects seeking to begin operation as soon as 2023
> Six of the eight LNG projects proposed in Mexico are along the Pacific Coast, where cargoes can be shipped to Asia. With the exception of one offshore project, all the gas for the plants would come from the U.S. via cross-border pipelines
> This year, Mexico has imported an average of 6.7 Bcf/d from the U.S. while it produces roughly 2.6 Bcf/d of its own gas

We have to rely on Mexico to have a market for NG whilst they run out of NG in Alaska

Total insanity

Note from RBC Capital
"September 2022 outlook overall neutral-to-modestly bullish to the oil and natural gas macro
The EIA forecasts oil production in select oil basins to increase by 137 Mb/d to 8,881 Mb/d and natural
gas to increase 0.7 Bcf/d to 93.8 Bcf/d. September oil production would have been forecast -19 Mb/
d based on the unadjusted prior period forecast. DUC wells in oil plays are at the lowest level since
mid-2014, and are 57% below peak levels from 2020. Although the September projected increase is
robust, the August revisions were significant and DUC levels remain at record low levels. We think
producers are pulling forward a bit of activity during 2H22 to keep current rigs/crews running into next
year instead of opting for typical 'frac holidays' when running ahead of schedule to stay within budgets.
We think this could lead to a slight DUC build late this year and provide a tailwind to 2023 plans."

As I have pointed out in numerous podcasts, upstream companies completed 150 to 200 more wells per month than they were drilling in 2021. That is what pushed U.S. oil production higher last year. Now that all of the "Good DUCs" are completed, U.S. oil production growth has slowed, declining in April and May. We should see modest oil production growth in June to November, unless we get hurricane related shutdowns like we did last year. U.S. oil production normally peaks each year in November and then declines during the winter months.

Closing Prices:
> Prompt-Month WTI (Sep 22) was down $-2.88 on the day, to settle at $86.53
> Prompt-Month Henry Hub (Sep 22) was up $0.601 on the day, to settle at $9.329

For modeling purposes, I am using higher WTI oil prices ($100 for Q3 and $105 for Q4) and much lower HH natural gas prices ($7.00 for Q3 and $7.50 for Q4).
The commodity price moves above pretty much offset for all of the Sweet 16 companies, plus most of them have some oil hedges in place that also lower the impact of the move in WTI.

I do believe that as we move closer to winter, the extremely low inventories of space heating fuels (heating oil, natural gas & NGLs) will draw a lot more attention.

There is a lot of "noise" this week. IMO the potential of a new deal with Iran is very low. The economic news coming out of China is also more of a FEAR than a reality. OPEC+ is still out of spare capacity, Russia is still at war with Ukraine and draws from the SPR will end soon.

The spike in the natural gas price is just the beginning of the bidding war between the utilities. In Sept 2005 the price of HH natural gas spiked to $13.82. We may beat that price in a few months. Adjusted for inflation, $20 is possible.