Energy Prospectus

Opening Prices:
> WTI is up $1.20 to $89.65/bbl, and Brent is up $1.18 to $95.60/bbl.
> Natural gas is down -13.8c to $6.834/MMBtu.

The AEGIS Energy Market Updates Webcast from Thursday, October 6, is now available to watch on-demand

Webcast Replay Link: https://info.aegis-hedging.com/webcast- ... ber-6-2022

AEGIS Notes
Oil
First Look - Oil set to post its largest weekly gain since March

Oil is headed for a second consecutive weekly gain, supported by OPEC+'s decision to make a 2 MMBbl/d supply cut
> WTI rose nearly 12% this week to trade near $90/Bbl < Several of the Wall Street Gang "Alpha Dogs" are forecasting $100/bbl by year-end. I believe WTI will move over $100/bbl soon after the mid-terms when Biden ends the SPR draws.
> Prices were also supported by Russian warnings of output cuts as the EU, and the G7 nations backed a price cap on Russian crude
> The U.S. added 263,000 jobs in September, which was above estimates after a 315,000 addition in August, while the unemployment rate fell to 3.5%, a five-decade low < This sure doesn't look like a recession to me.
> This implies a strong labor market, which puts the inflation-focused Federal Reserve on course for another significant interest-rate hike

Biden addressed reporters yesterday on OPEC+'s plan to reduce production by 2 MMBbl/d (BBG)
> He said that although they "haven't made up our minds yet," the White House is "looking at what alternatives we may have."
> Biden added that his July trip to Saudi Arabia was not a mistake < It just made him look foolish.
> According to Senate Majority Leader Chuck Schumer, the U.S. government is considering the NOPEC bill and other legislative options
> If signed into law, the NOPEC bill could allow the U.S. to sue OPEC+ members for violating antitrust laws < It is crap like this that is pushing Saudi Arabia toward Russia and China.

The U.S. is considering easing sanctions on Venezuela, allowing Caracas to produce up to 1.5 MMBbl/d of oil within two years (WSJ)
> The U.S. government has said that it will "scale down" its sanctions against Venezuela in order to potentially reopen U.S. and European markets to Venezuelan oil shipments, which have considerably decreased from '90s levels of 3.2 MMBbl/d
> The deal would allow Chevron and U.S. oil service companies to resume exporting Venezuelan oil to the global market
I have no problem with this, but it will not do anything to ease the energy crisis we have now. We should have solved the "problems" in Venezuela long ago. I have been to the country and I have only seen worse poverty in Haiti. Venezuela's oilfields are an environmental disaster.

Natural Gas

Natural gas futures are down 2% this morning and flat for the week after five consecutive lower weekly closes
> Weather forecasts have shifted cooler for the 6–15 day period, bringing the expected average temperature in the lower 48 to well below the 10-year normal
> Demand is expected to stay flat as cooler temperatures in some parts of the country lead to increased demand for residential and commercial heating

EIA reports largest inventory build in 7 years (BBG)
> Yesterday the EIA released their weekly natural gas storage update, which showed an injection of 129 Bcf, significantly higher than the median expectation
> This storage build brought the total amount of gas in storage to 3,106 Bcf
> Despite the larger-than-expected storage increase, gas inventories are still 8% below the five-year average
> Price reacted positively to the news, rising by 2.7% in the first 15 minutes following the storage report
Hurricane Ian's impact on power demand had a lot to do with the large build.

China increasingly reliant on LNG imports (Reuters)
> China’s consumption of natural gas has increased at an annual rate of 11% over the past ten years, while production from China has only increased by 7% over the same period
> 45% of domestic demand for gas came from imports in 2021, up from 34% in 2016
> The percentage of the population with access to gas has more than doubled since 2010 and is expected to continue to grow
> Two-thirds of China’s imports come from LNG, which is mostly provided by the US and Australia

From OilPrice.com with my comments in blue.

Friday, October 7th, 2022

Any doubt about the cohesion of OPEC+ was put to bed this week as the group's summit in Vienna ended with a 2 million bpd production cut. This cut appears to have achieved exactly what the participating members wanted, namely higher oil prices. It appears that fears of a global economic slowdown have taken a back seat to oil market fundamentals and geopolitical uncertainty. Saudi Arabia, the country that will spearhead the production cuts (Russia is already producing at its decreased target), has put the Biden Administration between a rock and a hard place only several weeks before the midterm elections. Confronted with the prospect of rising gasoline prices, the White House needs to react swiftly if it does not want to be seen as weak. < Does anyone on Earth actually believe that Biden is a "Strong President"????

White House Mulls Antitrust Case Against OPEC+. On the back of the OPEC+ 2 million bpd production cut, the Biden Administration threatened to trigger anti-trust action against the alliance, with legal committees in both chambers of Congress approving legislation that would allow the White House to do so. < It is hard to imagine a dumber thing we could do. This country runs on oil, and we are dependent on a steady flow of imports from OPEC+ countries.

EU Publishes Eighth Russia Sanctions Package. The European Union issued its new set of sanctions against Russia, including a ban on almost all steel products, a legal basis for a price cap on oil exports to third countries, as well as a further tightening on services involved in the seaborne transport of Russian oil. < How is the EU going to enforce this?

Nigerian Oil Theft Gets Creative. Nigeria’s state oil company NNPC said it had discovered an illegal 4-kilometer connection line from the Forcados export terminal into the sea, siphoning off crude undetected for nine years, as part of its clampdown against widespread oil theft. < Nigeria and Angola are the two OPEC cartel countries that are on terminal decline and have no hope of producing up to their quotas.

Outside of Saudi Arabia, UAE, Russia and two or three other cartel countries, there is NO SPARE OIL PRODUCTION CAPACITY ANYWHERE IN THE WORLD. Even a deal with Venezuela won't save Biden.

Closing Prices;
> Prompt-Month WTI (Nov 22) was up $4.19 on the day, to settle at $92.64
> Prompt-Month Henry Hub (Nov 22) was down $-0.224 on the day, to settle at $6.748

In my Saturday podcast I will explain why I believe WTI will go over $100/bbl soon after Biden quits draining the SPR.

Don't fret about the natural gas price.
1. All of our "gassers" are extremely profitable if ngas averages $6.00/mcf. Raymond James' forecast is that HH gas will average $7.00 in 2023 and I agree with their analysis. Send me an email if you'd like to read RJ's detailed report on natural gas.
2. We are still in the "Shoulder Season" when demand for power generation and space heating is the lowest point of the year.
3. In six weeks, we will start the winter heating season with ngas in storage much lower than where it should be to safely make it thru a cold winter.
4. Miss La Nina is going to deliver several "Polar Vortex" cold waves this winter.