Energy Prospectus

Opening Prices:
> WTI is down $0.08 to $85.38/bbl, and Brent is up $0.10 to $91.72/bbl.
> Natural gas is down -4.6c to $5.953/MMBtu.

AEGIS Notes
Oil

Biden administration plans to release more oil from the SPR (BBG, Reuters)
> The Biden administration plans to sell oil from the Strategic Petroleum Reserve in an attempt to bring down fuel prices before next month's congressional elections, said people familiar with the matter
> The sale would market the remaining 10 to 15 MMBbl from Biden’s previously announced release from the reserve of 180 MMBbl that started in May
> Furthermore, the administration is still mulling curbs on fuel exports to keep more gasoline and diesel in the country, according to two people familiar with the matter
> Meanwhile, Energy Aspects’ Amrita Sen told CNBC the Biden administration was considering releasing another 100 MMBbl from the SPR < The more oil they drain from the SPR, the longer oil prices will stay high.

Two big Indian refiners stop Russian crude purchases ahead of EU sanctions (BBG)
> Indian Oil Corp paused spot purchases of Russian shipments that will arrive beyond the deadline of December 5
> Bharat Petroleum Corp. would not consider one-off purchases until more clarity is available, said people familiar with the company’s procurement policy
> The restrictions may make it difficult to find ships and make payments for the cargo, the sources added, which is why Indian processors are seeking clarification on the sanctions

Natural Gas

Natural gas prices are down marginally this morning after yesterday’s 7% decline
> The Summer ’23 strip fell 16 cents to $4.98, and the Winter ‘23/’24 strip declined by 14 cents to settle at $5.54
> Weather forecasts continue to be volatile, as expected temperatures for the Lower 48 have shifted warmer in the 1–5-day period but have moved significantly lower in the 6–10-day period
> Most of the change for the 6-10-day period occurred in the Northeast and Midwest regions

European gas prices decline (BBG): The prompt-month Dutch Title-Transfer Facility price fell -9%, -$3.78 to $36.925, its lowest mark since June
> Warmer than average weather and relatively high levels of gas in storage have contributed to the drop in price
> EU gas storage facilities are 92% full ahead of winter, which may keep prices stable, although if colder than average weather appears, there could be more volatility < Without Russia ngas all winter, EU storage gas will drain quickly.

The US issues Jones Act waiver for Puerto Rico (Reuters)
> To ensure adequate supplies of LNG to Puerto Rico following Hurricane Fiona, the Department of Homeland Security has temporarily waived the Jones Act, which requires goods moved between US ports to be moved by US-flagged ships
> Hurricane Fiona left 3.3 million people without power causing lawmakers to work to ensure that Puerto Rico will have enough fuel for electricity generation
> Puerto Rico imports all the natural gas it consumes, averaging about 55 Bcf per year

Trading Economics at 11AM CT:
"WTI crude futures bottomed around the $82 per barrel mark, a dramatic reversal from its daily highs of $86.5, as fears about a potential global recession-driven demand downturn continued to hang over the market. Investors have been growing worried about a deteriorating outlook for growth and demand amid intensifying macro headwinds, including high inflation and tighter financial conditions. On top of that, China's fuel demand outlook weighed on sentiment after the world's top crude oil importer delayed the release of several economic indicators. Putting a floor under prices were growing concerns about tighter global supplies as OPEC and its allies, including Russia, agreed to cut production further ahead of the European Union embargo on Russian oil."
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Team Biden's announcement to draw more oil from the SPR was not mentioned. The US Dollar Index has pulled back slightly, which is a bit of support. MY TAKE is that moving oil from the SPR to commercial storage is not really an increase in US crude oil inventories. There is also FEAR that Team Biden might ban exports of refined products that IMO would be really stupid, but this administration's ignorance of the global oil market seems to have no limit.

The Energy Report: They’re Caught in a Trap
By Phil Flynn Oct 18, 2022 09:47AM ET My comments are in blue.

They’re caught in a trap; they can’t pull back. So they release more oil, baby. Why can’t they see that the oil’s not free, and you can’t control prices anyway? That can’t go on much longer; we are in a bind. And we can’t build our dreams leading from behind. < Team Biden is OK with adding $Trillions to US debt and now they are OK draining the US oil "savings account".

If, at first, you don’t succeed, release more oil. The Biden administration still doesn’t get the fact that the release from the Strategic Petroleum Reserve (SPR) failed to control oil prices. They are facing up to the reality that because they did not allow the market to work it out, now you must keep feeding the monster. It’s kind of like the little shop of horrors. When you start giving the market a little bit of blood, it’s going to want more and more and more, and it will never be truly satisfied. This is especially true because the Strategic Petroleum Reserve was never meant as a vehicle to control prices and if it was, then the size of the SPR was totally inadequate for the job.

Now, after drawing down SPR inventories to the lowest level since 1982 after releasing 165 million barrels of its 180 million barrels release, Bloomberg news is reporting that the Biden Administration is planning to release an additional 10 to 15 million barrels over and above the 180 million barrels that have been promised and mostly delivered. Yet, the original intention of the Biden administration tapping the reserve was last November, and that was to lower gasoline prices allegedly and to send OPEC plus a message.

Too bad the Biden administration isn’t getting the message because if you look at the price of gasoline, it is still 54.5 cents higher than a year ago before the Strategic Petroleum Reserve releases began. Now the Biden administration showed anger and disappointment at Saudi Arabia, accusing them of coercing other members to cut production. Those other members of the cartel did not see it that way, and most in the cartel believe that the Biden administration is using Saudi Arabia as a scapegoat to cover for the coming drubbing that the democratic party is going to get in the midterm elections. < Blaming others for your mistakes is the sign of poor leadership.

OPEC, for their part, could choose to wipe out Biden’s release with another production cut. Already the cartel says that they are concerned about slowing demand, and with a rising dollar, they believe that they have to adjust their production to avoid a price collapse. If the OPEC cartel sees fit, they could easily offset another SPR release and probably will have the incentive to do so because the Biden administration hasn’t exactly been very diplomatic with Saudi Arabia or the rest of the cartel.

Under Biden, it’s obvious that geopolitical risks to oil supplies are higher than they’ve been since the terror attacks of September 11th and, before that, the Arab oil embargo. The Biden administration tried to engage Iran as far as its nuclear program is concerned, and they also tried to reach out to Vladimir Putin to try to encourage him not to invade Ukraine, and they failed on both counts. Russia and Iran have become emboldened under Biden’s leadership. Many experts attribute this rise in trouble from Russia and Iran date back to Biden’s ill-fated decision to withdraw from Afghanistan.

There are signs that Russia and Iran plan to double down on current activities. Iran and Russia must be expecting more sanctions because they want to start their own version of the SWIFT banking system. This comes as Ukraine is asking for more help as Iranian drones are attacking civilian targets in Ukraine, allegedly being used by the Russians. I’m sure that the institution of this new making wire system means that Russia and Iran have more plans to cause havoc around the globe.

Recent weakness in the marketplace and oil has been attributed to the dollar and the potential release of Strategic Petroleum Reserve oil, but at the same time, diesel futures continue to be strong as the reality of tight supplies across the globe in winter right around the corner is keeping that market well supported. < US distillate inventories (diesel and home heating oil) are 23% below the five year average. The US does not have enough heating oil to make it through a La Nina winter!

We believe users of oil and gas need to continue to be hedged because we still see significant upside risks despite recent market weakness. The supply and demand side may kick in, and signs that the economy might not be as slow as people fear could lead to a supply squeeze in just a couple of weeks. Releases from the Strategic Petroleum Reserve have not served to let the market work and allow supplies to meet demand, as well as an uncertain regulatory environment by the Biden administration. < Also, I now think supply chain problems will keep a lid on US oil production growth and severe winter weather always causes problems in the oilfield. After November, I expect US oil production to decline December to March.

Natural gas took a big hit, but it is overdone. The EIA reports that U.S. natural gas bills will increase in all regions this winter.

They also reported that U.S. households that primarily use natural gas for space heating would spend an average of $931 on heating this winter (October-March), which is 28% (or $206) more than last year.

Natural gas is the primary heating fuel for 47% of U.S. homes, according to the U.S. Census Bureau’s 2021 American Community Survey. The retail price of natural gas and the amount of natural gas consumed determine how much households spend on winter natural gas bills. < Millions of homes turned on their natural gas furnaces last night for the first time since April. I expect EIA to report one more triple digit ngas storage build for the week ending October 14, then the last four storage builds of the refill season should be below the 5-year average.

From "Drill, Baby, Drill" to "Draw, Baby, Draw"

Closing Prices:
> Prompt-Month WTI (Nov 22) was down $-2.64 on the day, to settle at $82.82
> Prompt-Month Henry Hub (Nov 22) was down $-0.254 on the day, to settle at $5.745

Jones act waiver for PR

To ensure adequate supplies of LNG to Puerto Rico following Hurricane Fiona, the Department of Homeland Security has temporarily waived the Jones Act, which requires goods moved between US ports to be moved by US-flagged ships

How about boston, mass?

We have to compete with Europe for NG. Total insanity. We used to buy from Russia. We can't import from Houston. Total insanity

Thanks for the excellent summary of Team Biden's continuing record of "being wrong on every foreign policy decision for 40 years." This according to Bob Gates, the Defense Secretary under Obama. What a disaster.