Energy Prospectus

Opening Prices:
> WTI is down $0.50 to $80.73/bbl, and Brent is up $0.09 to $88.58/bbl.
> Natural gas is up 0.3c to $6.877/MMBtu.

AEGIS Notes
Oil

Oil is set to finish the week higher but could end the quarter down, marking its first quarterly loss in two years
Increased recessionary fears, a generally weaker macroeconomic outlook, and strength in the U.S. dollar put downward pressure on oil this week
The U.S. Dollar has eased from its recent 20-year highs
A weaker USD makes dollar-denominated oil cheaper for buyers holding other currencies, improving demand for crude

OPEC+ is set to meet next week, and it was reported that some major OPEC+ producers have already initiated discussions on a potential cut in their quota
This morning, Reuters reported that some producers have narrowed the range of options for an output cut to between 0.5 to 1.0 MMBbl/d
AEGIS notes that even if the quota target is reduced, the actual production loss may be much smaller, given that many OPEC+ countries are already pumping well below their targets
Additionally, a significant fall in the collective quota would indicate to the market that the cartel is actively monitoring price changes and would act accordingly

China officially announced a 15 million ton (3.063 MMBbl/d) fuel export quota, their largest export quota this year, after several weeks of discussions (BBG)
China's fuel export quota will be set at 37.25 million tons (7.106 MMBbl/d) in 2022, which is slightly under the 37.61 million tons (7.680 MMBbl/d) announced last year
The increased quota comes as China seeks to strengthen its economy, which has been hit by Covid lockdowns and a housing slump

The U.S. Treasury Department imposed sanctions on several energy companies in China and the UAE as they violated the restrictions on Iranian exports (BBG)
The sanctions were targeted at companies involved in the export of Iranian petroleum and petrochemical products worth "hundreds of millions of dollars" to consumers in South and East Asia, according to the Treasury Department
The State Department said that sanctions against Iran would continue to "accelerate" if Tehran expands its nuclear program and continues to violate the JCPOA despite the ongoing impasse in US-Iran nuclear talks

Natural Gas

Natural gas is set to finish the week higher, after four consecutive weeks lower
Yesterday the EIA reported a storage build of 103 Bcf, which was the second triple digit storage build in a row, and the third for 2022
This week’s storage change fell on the more bearish side, compared to the five-year average storage change for this time of year
AEGIS notes that continued above average storage builds could put bearish pressure on natural gas prices as inventories rise ahead of winter

Cheniere to add third dock at LNG terminal (BBG)
Cheniere, the largest LNG exporter in the U.S., stated that they will be increasing their dock capacity at their Sabine Pass facility
The expansion will make the Sabine Pass facility the only U.S. LNG terminal with three docks
The new dock is not yet approved by regulators however, and will not be able to enter commercial service until then
AEGIS notes that the growth of LNG exports will be the largest contributor of demand for natural gas over the next several years

From OilPrice.com

It is not unusual to see oil prices spike in late September as hurricanes ravage the US Gulf of Mexico, yet, despite the horrendous damage done to Florida and other south-eastern states, Hurricane Ian has failed to become a notable factor for crude. And whilst some pricing upside came from US stock draws, a new batch of Iranian sanctions, and marginal weakening of the US dollar, the next big catalyst for oil prices will be the OPEC+ meeting taking place on October 5th. With production cuts being discussed as a means of maintaining palatable prices, an upward run towards $100 per barrel might be on the cards for ICE Brent.

OPEC+ Seems to Be Serious About Cuts. According to OPEC+ sources, members of the oil group have started talks about potential oil production cuts in November 2022 as Russia has already suggested a 1 million b/d target reduction for the October 5th meeting. < MY TAKE: OPEC+ production in August was close to 3 million bpd below their official quotas, so any cuts they announce are just moving back to the reality that the cartel is tapped out.

Actual oil and gas prices in Q3 are above what I used in my forecast/valuation models. All of the model portfolio companies are going to report strong Q3 results.

I believe that oil, gas and NGL prices will move higher as real winter weather approaches since space heating fuel inventories are below where they should be this time of year. Plus, high coal prices will also support high natural gas prices.

From Reuters

"Russia seen suggesting OPEC+ cuts oil output by 1 mln bpd"

"OPEC+ has begun talks on output cut at Oct. 5 meeting - OPEC source"

DUBAI, Sept 29 (Reuters) - Leading OPEC+ members have begun discussions about an oil output cut at the group's next meeting on Oct. 5, three sources told Reuters.

One OPEC source told Reuters a cut was "likely", while two other OPEC+ sources said key members had spoken about the topic.

A source familiar with Russian thinking told Reuters earlier this week that Moscow could suggest a cut of up to 1 million barrels per day (bpd)

Closing Prices:
> Prompt-Month WTI (Nov 22) was down $-1.74 on the day, to settle at $79.49
> Prompt-Month Henry Hub (Nov 22) was down $-0.108 on the day, to settle at $6.766

Last Look - Oil posts the first quarterly loss since 2020 | Gas gains $1.34, or nearly 25% this quarter