Energy Prospectus

Opening Prices:
> WTI is up $3.91 to $83.40/bbl, and Brent is up $3.69 to $88.83/bbl.
> Natural gas is down -27.7c to $6.489/MMBtu.

AEGIS Notes
Oil

WTI jumps nearly 5% on Monday amid reports of a potential OPEC+ output cut
> OPEC+ is weighing a substantial output cut of more than 1 MMBbl/d for November < It is important to note that it is not an actual production cut. It is an adjustment to the cartel's official quotas because they are nowhere near being able to produce up to their quotas. See last AEGIS note below.
> Interest rates and a strong dollar continue to weigh on the market
> The dollar index fell for a fourth consecutive day on Monday after touching its highest in two decades < This is a BIG DEAL.
> A cheaper dollar could bolster oil demand and support prices

OPEC and its allies, known collectively as OPEC+, are considering an output cut of more than 1 MMBbl/d ahead of Wednesday's meeting (BBG)
> The cartel weighs cutting oil production to stem a recent slump in prices
> If OPEC+ decides to reduce their collective production by 1 MMBbl/d, it would be the largest cut since 2020
> Additionally, a massive production cut may have the potential of adding another shock to the global economy that is already dealing with energy-driven inflation
> Furthermore, a production cut would result in more spare capacity, which would put downward pressure on longer-term prices, according to energy consultant firm FGE
> Any reduction will occur one month before EU sanctions on Russian crude shipments take effect on December 5, complicating the outlook
> Over the course of the year, the difference between the group's actual production and its quota has grown, with August's production falling more than 3.6 MMBbl/d behind the target volume

Natural Gas

Natural gas prices start the week lower by 4.5%, continuing the four-week decline
> The prompt-month contract has closed lower for four weeks in a row, with gas prices now down almost 35% from the August high
> Weather is still forecast to be well below the 10-year normal for the next two weeks, which should keep demand from power generation relatively muted
> Gas production recovered over the weekend as it continues to slowly trend higher, however, it has yet to surpass recent highs

Shortage of LNG vessels sends shipping rates to a record high (BBG)
> As Europe attempts to replace Russian gas with LNG imports, companies are being forced to pay increasingly high rates to transport gas to Europe
> “LNG freight rates have increased 300% in one month as participants look to secure the last remaining vessels ahead of winter,” said Tim Mendelssohn, of Spark Commodities
> Shell Plc booked a cargo from the U.S. to Europe at a rate equivalent to $400k per day, with the deal likely being the most expensive gas cargo ever for the Atlantic basin
> The shortage of ships has also caused floating LNG terminal rates in Europe to spike

MY TAKE: I cannot stress enough that the natural gas market is "regional". There is no shortage of natural gas in the US today, but the US ngas market will be very tight this winter. Demand from the US based LNG exporters will spike by ~2 Bcfpd in December at the same time demand for the space heating fuel ramps up.

There is a lot of "NOISE" impacting oil prices, but the fact is that this world is "short oil" and a cold winter is just a few weeks away.

OPEC plus considering major production cut to prop up oil prices. New York Times.
OPEC Plus, the oil producers’ group, is considering announcing a major cut in production when it meets on Wednesday, according to a person familiar with the thinking of Saudi Arabia, the group’s de facto leader. Such a move, which analysts say is widely expected, would be a blow to the Biden administration, after it lobbied the Saudis to increase output. Note: Reuters also reports.

Natural gas markets expected to remain tight into 2023 as Russia further reduces supplies to Europe. IEA.
Press Release. European demand for LNG sets off global competition for supplies, even as demand tumbles in Europe and Asian growth stalls, according to latest IEA market report. Russia’s continued curtailment of natural gas flows to Europe has pushed international prices to painful new highs, disrupted trade flows and led to acute fuel shortages in some emerging and developing economies, with the market tightness expected to continue well into 2023, according to the IEA’s latest quarterly Gas Market Report.

Why limiting U.S. energy exports would only worsen domestic supply problems. Forbes. Opinion.
Another active week in the energy space ended with the Wall Street Journal reporting that the CEO of ExxonMobil, Darren Woods, was having to waste his time arguing with officials at the U.S. Department of Energy about their apparent ongoing desire to limit U.S. exports of crude oil and other fuels, even liquefied natural gas (LNG). Quoting from a letter Mr. Woods sent to DOE, the CEO said that “Continuing current Gulf Coast exports is essential to efficiently rebalance markets—particularly with diverted Russian supplies. Reducing global supply by limiting U.S. exports to build region-specific inventory will only aggravate the global supply shortfall. < In other words: "Get government idiots out of the way and we will fix the problem a lot faster and BTW quick blaming us for price gouging."

ESG investors should support big oil. Forbes. Opinion.
If you’re an ESG investor, you should be investing in big oil and gas. I know it sounds counterintuitive but hear me out. A decade ago, oil and gas companies were generally horrible investments, regardless of your stance on the environment. Corporate governance was dreadful, capital allocation was reckless, and little time was being spent on thinking about what happens after oil. The environment definitely wasn’t something the companies were thinking about, and sustainability was still technologically difficult – we didn’t have a cost-efficient way to produce renewable electricity or power electric vehicles.

Oil & gas prices, who knows? Odessa American.
Texas Independent Producers & Royalty Owners Association President Ed Longanecker said aggressive federal interest rate hikes, recessionary fears, a conflicted futures market and bearish sentiment “will be counter-acted by tight global supplies and growing demand exacerbated by a host of issues, including geopolitical conflicts, Russian sanctions, the escalating energy crisis in Europe, the Strategic Petroleum Reserve release winding down, limited output from OPEC-Plus, weather, an uptick in economic activity in China and poorly conceived federal energy policy.

Report: Higher energy prices nationwide tied to government policies. The Center Square.
Americans are struggling with higher gas and energy prices around the country with some states faring worse than others, a new report from the American Legislative Exchange Council shows. The report says “when the government inserts itself into the energy markets, taxpayers foot the bill,” adding that “inefficient government mandates driven by political interests often pick winners and losers in individual energy markets, causing, at best, skyrocketing costs through poor investment decisions.”

Closing Prices:
> Prompt-Month WTI (Nov 22) was up $4.14 on the day, to settle at $83.63 < OPEC is showing the market that it still controls oil prices.
> Prompt-Month Henry Hub (Nov 22) was down $-0.296 on the day, to settle at $6.470 < Natural gas will join the party after Shoulder Season ends in November.