Energy Prospectus

Opening Prices:
> WTI is up $1.12 to $86.44/bbl, and Brent is up $0.83 to $94.35/bbl.
> Natural gas is down -22.9c to $5.384/MMBtu.

AEGIS Notes
Oil

Oil extends gains to trade higher
WTI is trading above $86/Bbl amid a weakening dollar
The USD Index (DXY – a proxy for U.S. Dollar strength against a basket of other international currencies) fell to its lowest in nearly three weeks
A weaker dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay less for the same amount of goods

Saudi Arabia’s energy minister defended OPEC+’s decision yesterday and criticized countries such as the U.S. for drawing upon their strategic reserves (Reuters, BBG)
Prince Abdulaziz bin Salman, Saudi Arabia's energy minister, warned that " losing emergency stocks may become painful in the months to come " as some nations are using their emergency inventories to manipulate markets rather than helping to ease shortages
The remarks follow President Biden's announcement that he will sell more crude from the SPR and outline a buyback mechanism for replenishing the SPR

The diesel shortage that’s alarming the Northeast is spreading to the Southeast (BBG)
“At times, carriers are having to visit multiple terminals to find supply, which delays deliveries and strains local trucking capacity,” said fuel supplier Mansfield Energy in a note to its clients
“Because conditions are rapidly devolving,” Mansfield Energy is now requiring a 72-hour notice for deliveries in order to secure fuel and freight
Fuel costs are 30 to 80 cents more expensive than the market average in the most constrained regions

I told you so!
Diesel appears to be in short supply as the winter in the northern hemisphere sets in, which will raise fuel costs and confound policymakers who are concentrating on oil to control energy inflation, said Goldman Sachs in a note
The bank added that underinvestment in the country's fuel-making capacity, which is being aggravated by refinery closures and disruptions, is leading to a shortage of refined products, particularly diesel, whose supplies are at “unprecedentedly low levels”
MY TAKE: This is a HUGE PROBLEM. This country and the world's economy runs on diesel. Team Biden's "Gang" has been focused on gasoline prices, but diesel and home heating oil shortages is a more serious problem.

Natural Gas

The prompt-month (Nov '22) gas contract is trading 4% lower at $5.391 < DEC22 NYMEX contract at $6.00 when I posted this.
Gas has come under heavy selling pressure since the beginning of September. The rolling prompt contract has fallen from $9, to $5.41 , while Winter '22/'23 has fallen from $8.93 to $5.81 during that same period
The further-dated strips (Summer '23 & Winter '23/'24) have remained fairly insulated from the selling pressure in the front of the curve but are still trading below previous-highs
Waha, a proxy for Permian basin gas prices, also traded negative yesterday for the first time in two years as takeaway capacity was tested due to pipeline maintenance.

Some lawmakers are concerned about Chinese purchases of US LNG (Politico)
Chinese companies are the largest buyers of US gas exports, responsible for nearly 50% of LNG purchases
Lawmakers in the US are asking the White House to consider a limit on LNG exports to China and to close loopholes that allow some blacklisted Chinese companies to continue buying US gas
Many representatives believe that the benefits of keeping the gas in the domestic market would outweigh the benefits of exporting it by ensuring adequate supplies and lower prices in the US
Florida senator Marco Rubio said, “Any company connected to the CCP merits extra scrutiny by American regulators”
I wish the politicians would stay out of the global energy markets.

UK reverses decision to allow fracking (Reuters)
New UK prime minister, Rishi Sunak, has overturned the decision by his predecessor, Liz Truss, to allow fracking in one of his first actions as PM
Last month former PM Liz Truss lifted a moratorium on fracking in an attempt to increase supplies of energy and lower prices
In 2019 the UK banned fracking, citing geological risks and potential earthquakes

WTI up $2.90 to $88.22/bbl at the time of this post.

From OilPrice.com this morning.
"The weakening of the U.S. dollar helped oil prices this week, keeping WTI front-month prices at $86 per barrel despite the avalanche of bad macroeconomic news. With business activity contracting in the U.S., the UK and the euro zone (in the latter it was the worst industrial performance report in the entire post-pandemic period), the oil market bulls are still facing an uphill battle, indicating that the lack of supply in the short term will gain the upper hand over demand concerns in the longer term. So far it has been a draw."

Saudi Arabia Warns Against Using Emergency Stocks. Saudi Arabia’s energy minister Prince Abdulaziz bin Salman has warned against using SPR inventories as a mechanism to manipulate markets, saying losing stocks may be “painful” in the months to come.

Free Cash Flow of U.S. Oil Surges. According to Deloitte, the free cash flow of U.S. oil producers is set to increase by 68% this year to $1.4 trillion amidst surging prices of oil and products – quite the contrast with crude production in the country, which is set to increase only by 4.5% year-on-year.
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MY TAKE: Biden's "scheme" to drain the SPR will end soon after the midterms. The colder it gets in the Northern Hemisphere (I believe in "Climate The Same") the higher demand for oil will go. There is no spare oil supply capacity in the world. WTI goes over $100 in Q1.

You should all watch the interview.

I have personally been working in the oil & gas industry of over 40 years. US politicians don't seem to grasp the importance of Saudi Arabia and the OPEC cartel in general. The people we have in Washington today don't understand the global oil market and how important it is to our standard of living. We need OPEC to do their job of stabilizing the oil market and maintaining some spare capacity. If we are stupid enough to pass the NOPEC law it will destroy our relationship with Saudi Arabia and that will not be a good thing for the U.S.

We are not "Energy Independent", nor should we be. We are "Energy Interdependent" and that is a significantly different paradigm. Europe's "Sanctions War" with Russia is not wise. Europe will pay a heavy price and the U.S. and Canada should be very careful not to follow Europe off the cliff.

Closing Prices:
> Prompt-Month WTI (Dec 22) was up $2.59 on the day, to settle at $87.91
> Prompt-Month Henry Hub (Nov 22) was down $-0.007 on the day, to settle at $5.606