Energy Prospectus

Opening Prices
> WTI is down $1.37 to $89.13/bbl, and Brent is down $1.67 to $94.92/bbl.
> Natural gas is down -21.8c to $8.97/MMBtu.

AEGIS Notes:
Oil

Prompt crude prices are heading for a weekly loss
> WTI futures dropped below $90/Bbl today and are down about 4% for the week
> A bullish EIA report, recent developments in the Iran/U.S. nuclear talks, and China's weak economic data were among the factors that affected the front month prices this week < Just remember that very low US & OECD Petroleum Inventories are the "Primary Driver" of oil prices. The other stuff is more FEAR and confusing noise.

Shell has cut production at its Rhineland refinery in Germany, the largest oil refinery in the country, which is situated along the Rhine (BBG)
> "Due to the low Rhine water level, we have reduced the capacity of Shell Energy and Chemicals Park Rhineland," said Shell in an email
> The Rhineland refinery processes about 345 MBbl/d of crude, and Shell wouldn't specify the extent of production cuts but said that supply is "challenging but carefully managed"
> Rhine water levels were estimated to be at 34 cm, which represents lows not seen since 2018

China remains committed to improving its economy following a meeting that Premier Li Keqiang chaired to discuss China's weak economic data (BBG)
> The nation will increase fiscal and monetary support and may lower the financing costs of businesses and personal loans, reported state-owned broadcaster CCTV
> Li acknowledged the Covid lockdowns' greater-than-anticipated downward pressure in 2Q22 and urged the authorities to balance Covid control measures with the need to lift the economy

Natural Gas

Natural gas is down 2%, trading around $9.00/MMBtu
> Prices have backed off slightly after reaching a new yearly high this week
> Yesterday the EIA released their weekly storage report that showed an injection of 18 Bcf, which was below the median estimate of 31 Bcf and the survey low of 24 Bcf
> Temperatures are expected to remain moderate over the next two weeks, with gas demand expected to average 65-66 Bcf/d during that time < Note that this does not include export demand.
> Lower 48 gas production remains at the lower end of the range it has held since June, with production averaging 96.5 Bcf/d since then

China's decarbonization drive will fuel gas demand (Moodys)
> China has become the world's largest natural gas importer with increasing reliance on LNG to meet the consumption gap
> China's push to decarbonize its economy will support long-term gas demand, with gas being used as a key transition fuel
> Domestic production of natural gas in China continues to increase but demand from industry, and gas-fired power generation has consistently outpaced production

MY TAKE: Since natural gas is the cleanest burning fossil fuel, domestic and global demand for natural gas is growing at 3X to 4X the demand growth rate for crude oil. All of our "gassers" are going to generate very strong free cash flow over the next 3 quarters. We published a profile on SilverBow Resources (SBOW) this morning. It should report outstanding results for 2H 2022.

This got some attention:
"OPEC Sees Robust Oil Demand Despite Sell-Off"
By OilPrice.comCommodities3 hours ago (Aug 19, 2022 08:11AM ET)

Read: https://www.investing.com/analysis/opec ... -200628756

There is no Quick Fit for the world's energy shortage. There is going to be space heating fuel CRISIS this winter that will draw a lot of attention.

The Energy Report: Don’t Blame OPEC
By Phil Flynn Aug 19, 2022 10:07AM ET

While oil bears continue to root for a recession, the reality is that the world is facing a major energy crisis that isn’t going away despite recent oil price market weakness.

Oil prices are pulling back after just coming one tick from breaking out to the upside on recession fears and Fed talk that is causing the dollar to rally and risk assets to pull back. European natural gas prices have surged to all-time highs raising the risk not only to the European economy but to the health and well-being of their people. While the Biden administration continues to blame Vladimir Putin for all of our energy problems and calls on OPEC to raise production, the new OPEC secretary general has a message to those who believe OPEC can bail them out of this mess.

Biden’s fixation on green energy, which is favored by billionaires that will get even richer off of this transition while making the poor poorer and more vulnerable, it’s very evident in the inflation reduction act that magically became the green energy act.

In an online interview reported by Reuters, OPEC Secretary General Haitham Al Ghais of Kuwait had this to say about the global energy crisis:

“Don’t blame OPEC, blame your own policymakers and lawmakers, because OPEC and the producing countries have been pushing time and time again for investing in oil (and gas). What the OPEC Secretary General is saying is that the green energy movement was put together in a shortsighted way and is causing major problems around the globe."

Joe Biden, thanks for throwing a lot of money at green energy projects thinking he could save the world, and apparently, Microsoft chairman Bill Gates is taking credit for twisting Senator Joe Manchin’s arm for going along with this inflation-increasing act. I call it that because it’s going to raise the cost of fossil fuels and discourage investment in the energy sector. Instead, it will invest taxpayer dollars in green energy windmills and solar panels and makes the assumption that’s why Bill Gates is buying all the farmland because he thinks he can make more money selling biofuels to America when the energy grid fails from too many electric cars.

Fed officials Esther George, James Bullard, and Neil Kashkari spoke yesterday, and I think it was Mr. Kashkari’s comments about the Fed being willing to do what it takes, even if it means pushing the economy into a recession, that’s causing oversee traders to drive up the dollar. Reuters reported that Minneapolis Federal Reserve Bank President Neel Kashkari on Thursday said the U.S. central bank needs to get “very, very” high inflation down as soon as possible, even at the cost of possibly triggering a recession.

Kashkari said at an event at the YPO Gold Twin Cities:

“We need to get inflation down urgently. We need to get demand down [by raising interest rates]."

Economic fundamentals are strong, he said, but whether the Fed can lower inflation without sending the economy into a recession, he said, “I don’t know.”

Bloomberg reported that the market is digesting mixed policy signals from Federal Reserve officials on interest rates. St. Louis’s James Bullard urged another 75 basis-point move, while Kansas City’s Esther George struck a more cautious tone, saying the pace of hikes is up for debate. The dollar has also strengthened this week, adding to headwinds for commodities. Minneapolis Federal Reserve Bank President Neel Kashkari on Thursday said the U.S. central bank needs to get “very, very” high inflation down as soon as possible, even at the cost of possibly triggering a recession.

This comes as U.S. existing home sales fell in July for the sixth straight month, the longest streak of declines in more than eight years, as higher mortgage rates and a shortage of homes for sale are cooling the market.

The other concern for oil traders is the possible return of Iranian oil. The market is waiting for the U.S. response to the Iranian proposal. The U.S. has been studying the proposal for two days, and we’re not really getting a signal as to whether or not we are going to accept the terms that the Iranians want. Israel, for their part, has stated that the deal will be unacceptable because it will cross red lines that the Biden administration themselves put into place. Yet Biden is desperate for a diplomatic win, especially after the one-year anniversary of his disastrous pullout from Afghanistan that is reminding people of one of the biggest blunders from an American President in history. < Is a "diplomatic win" world giving into Iran's terms and giving them a clear path to weapons grade uranium?

Since Phil wrote the next paragraph, WIT has rebounded and is now up $1.59/bbl to $91.97. Brent is also up more than $1.15/bbl.

The fundamental outlook for oil is still wildly bullish, but the technical setup is still looking bad. As I mentioned previously, oil almost completed the process of breaking out of the downward channel but failed to do so by just one tick. That keeps us in that downward channel, and the technicians are able to drive prices lower with help from a rising dollar and recession concerns. My concern is that the market is underestimating how desperate the global supply situation is going into winter, especially when it comes to distillate inventories. I am also concerned that low prices could discourage production at a time when it is desperately needed. Technically we would need to see a reversal of the market action to get the algorithms going to the bull side, but at the same time, the risks or a major reversal to the upside are very real. Major downside risks, of course, are continued weak demand from China and the potential for an Iranian nuclear deal. As far as China goes, we believe that demand will snap back, and we are still skeptical that an Iranian deal can get done anytime soon.

Natural gas prices hit a stunning high after a wildly bullish Energy Information Administration (EIA) injection number that came in well below market expectations. Yet it collapsed later on because people believed that prices were just too high, and some profit-taking came in after a huge surge. U.S. natural gas production continues to disappoint and just leave the market undersupplied going into winter. Yep, we are starting to see some profit-taking develop.

Working gas in storage was 2,519 Bcf as of Friday, August 12, 2022, according to EIA estimates. This represents a net increase of 18 Bcf from the previous week. Stocks were 296 Bcf less than last year at this time and 367 Bcf below the five-year average of 2,886 Bcf. At 2,519 Bcf, the total working gas is within the five-year historical range. < Keep in mind that we consume a lot more natural gas for space heating and power generation than we did five years ago.

Closing Prices:
> Prompt-Month WTI (Sep 22) was up $0.27 on the day, to settle at $90.77
> Prompt-Month Henry Hub (Sep 22) was up $0.148 on the day, to settle at $9.336

I cannot stress enough that the global oil market is much different than the regional natural gas market. We are rapidly approaching the winter heating season with not enough natural gas in storage to make it through a cold winter. The utility companies that bring natural gas to homes and businesses MUST GET MORE NATURAL GAS SUPPLY. They are in a bidding war with each other and with the LNG export companies.