Energy Prospectus

The Year of the Roller-coaster ride continues.

Opening Prices:
> WTI is up $2.48 to $86.02/bbl, and Brent is up $2.64 to $91.79/bbl.
> Natural gas is up 14.5c to $8.06/MMBtu.

AEGIS Notes
Oil

Oil is set to post a second weekly decline
> WTI rose above $85/Bbl this morning but is still down about 1% this week after reaching its lowest since January
The market weighs that consumption may suffer as central banks raise interest rates and China adheres to its Covid Zero strategy

Energy Secretary Granholm said yesterday that the Biden administration is considering releasing more U.S. SPR once the present program of 1 MMBbl/d expires in October (BBG, Reuters)
> She added that Biden’s administration is looking for strategies to prevent an anticipated rise in oil price later this year < and he doesn't want gasoline prices going up before the midterm elections.
> The following release is being considered since European sanctions will go into effect in December and because the EU is mulling a price cap on Russian crude, which might drive up prices even further < What the EU should be doing is "mulling" the idea of a negotiated settlement of the war in Ukraine.
> Since March, the SPR has released 173.8 MMBbl in total, reducing the SPR stocks to below 450 MMBbl
> Granholm also said that the administration has not ruled out a ban on U.S. gasoline exports, but it is “certainly not something on top of the list” as the U.S. and its allies continue to explore a price cap on Russian oil

Fed Chair Powell said yesterday that the Fed is “strongly committed” to combating inflation but is optimistic that it can be done without “very high social costs” (Reuters)
> Many analysts anticipate a larger 75-basis point increase in the interest rates
> This could act as a bearish factor on oil prices as rising interest rates could limit economic activity and thus cut fuel demand growth

Natural Gas

Prompt month natural gas prices are up 2.5% this morning
> Weather forecasts for the next five days have come down to the 10-year normal, while the 10–15 day forecast has warmed
> Production is down 0.3 Bcf/d, but still near the August highs
> Yesterday the EIA reported a storage build of 54 Bcf, bringing the total gas in storage to 2,694 Bcf, a 394 Bcf deficit to the five-year average < This is an error, the deficit to the five-year average is 349 Bcf.

Record heat wave causes California to burn more natural gas (NBC)
> The heat wave that began more than a week ago has been more intense than any other in the state, and it has put unprecedented strain on power supplies
> The state has had to rely more heavily on natural gas to produce electricity and avoid power outages
> The threat of power shortages caused the state electrical operators to bring emergency natural gas generators online
> The state's electric cars on running on power generated by natural gas and coal.

LNG in floating storage reaches a new high (Gulf Business)
> European LNG import terminals have reached capacity as European countries race to fill gas storage
> LNG volumes in floating storage globally hit 1.4 million tons on Sept. 2, the most in two years, according to energy intelligence firm Kpler
> Freight rates for LNG carriers have been driven higher, and CEO of shipowner Flex LNG Management said, “the LNG gas carrier market is mostly sold out for the winter”
> Yesterday's LNG prices were $65.43 in Europe and $52.84 in Japan/Korea

Cushing, Oklahoma is the most important oil storage hub in the U.S.

Per EIA: Cushing stocks fell 500,000 barrels during the week ending Sept 2nd to 24.8 million barrels, (-32.0% y/y)

It is estimated that inventories at Cushing must stay over 20 million barrels to keep refineries adequately supplied. This "Supply Chain" is the one of the most important in the world.

Cushing's total storage capacity is over 64 million barrels.

> The White House is concerned that oil prices will spike again later this year following Putin's warnings that Russia may cut oil exports if more sanctions and/or price caps go into effect...

The administration is reportedly considering an additional program of SPR releases, even after conducting the largest release in the nation's history over the course of this year

For the first time since 2017, Nigeria has been surpassed as Africa's top oil producer...

Angola's August production averaged 1.2MM bbl/d in August vs. Nigeria's 1.1MM bbl/d

A US District Court judge ruled that Enbridge can keep its Line 5 crude pipeline, a key supplier of US Midwest and Canadian refineries, in operation while the company reroutes a section around Native American land. The ruling is a setback for Michigan Governor Gretchen Whitmer (one of the most dangerous Climate Change Wackos) who previously ordered the pipeline's shutdown as well as other champions of the Great Climate Crusade.

Trading Economics:

WTI crude futures rose above $86 per barrel on Friday, limiting the weekly decline to less than 1% as investors weighed on the weakening outlook of global demand against risks of lower supply. Price caps on Russian natural gas mulled by EU ministers prompted President Putin to threaten the immediate halt of all energy exports to Europe, including oil and coal. Further bearish pressure this week was attributed to the pledge of lower output by OPEC+ producers. Still, WTI futures are set to book losses for the second consecutive week amid aggressive monetary tightening by major central banks and fresh Covid lockdowns in top importer China. The ECB delivered a historic 75bps rate hike, while Chairman Powell reiterated the Fed’s commitment to fight inflation. In China, Chengdu extended a lockdown for most of its 21 million residents, highlighting the country’s strict adherence to its zero-Covid strategy that derails economic recovery and clouds the demand outlook.

US natural gas futures rose toward $8.2/MMBtu after EIA reported utilities added 54 billion cubic feet (bcf) of gas to storage last week, in line with expectations but below a five-year average increase of 65 bcf. Still, US natural gas prices remain close to 4-week lows in anticipation of lower demand for next week, record-breaking domestic supplies and easing prices in Europe. Average gas output in the US Lower 48 states rose to 99.2 bcfd so far in September from a record 98.0 bcfd in August, according to data provider Refinitiv. Average US gas demand, including exports, is expected to fall to 93.3 bcfd next week from 97.4 bcfd this week, above Refinitiv's outlook on Wednesday. In addition, Freeport LNG announced that it would delay the restart of its Quintana export plant to November, leaving more gas in the US for utilities to inject into stockpiles for next winter. In the US West, California's grid operator urged consumers to conserve energy for the ninth day in a row on Thursday.

My Q3 forecasts are based on $90/bbl WTI and $8.00/mcf HH ngas.

Closing Prices:
> Prompt-Month WTI (Oct 22) was up $3.25 on the day, to settle at $86.79
> Prompt-Month Henry Hub (Oct 22) was up $0.081 on the day, to settle at $7.996