Energy Prospectus

Opening Prices:
> WTI is down $0.58 to $79.50/bbl, and Brent is down $0.49 to $87.13/bbl.
> Natural gas is up 8.7c to $6.39/MMBtu.

AEGIS Notes
Oil

Oil prices continued to slide Monday morning following the biggest weekly drop since August
> Attention continues to remain on China’s Covid-19 policy as the world’s largest oil importer had its first reported Covid-related death in almost six months (Bloomberg)
> Investment bank Goldman Sachs lowered its Q4 forecast for Brent crude by $10/Bbl to $100/Bbl, according to a note to clients
> The lower forecast comes amid the possibility of further lockdowns in China as Covid-19 cases climb
> GS lowered its demand expectations by 1.2 MMBbl/d in Q4

The Group of Seven nations plan to announce their oil-price cap this week (Bloomberg)
> The cap would ban companies from providing shipping services, such as insurance, brokering, and financial assistance, needed to transport Russian oil unless a price cap was met
> Most G7 nations and the EU will stop importing Russian crude this year
> AEGIS notes that the actual amount of Russian crude production impacted by the sanctions will be key to supply and demand balances next year.
> Analysts’ estimates of impacted Russian crude supply range from about 300 MBbl/d lower than current levels to a 1.5-MMBbl/d reduction

MY TAKE: The "NOISE" level that's impacting oil prices is very high + "gloom & doom" over the global economy is also very high. The global shortage of space heating fuels should be pushing oil prices higher. IMO Covid cases in China are no big deal if almost zero deaths. China is using Covid lockdowns to control the population. FEAR is a powerful tool.

Natural Gas

The prompt-month natural gas contract is up by 3% this morning
> The Summer ’23 strip is 8c higher at $4.96, and the Winter ‘23/’24 strip is up 6 cents at $5.50
Weather forecasts for the next two weeks have shifted warmer today, bringing forecasted temperatures close to the 10-year normal in the 1-5 day period, but still cooler than normal in the 6-15 day period

Freeport LNG pushes restart to mid-December (Reuters)
> Freeport officially announced a change in their restart timeline on Friday, moving the date from mid-November to mid-December
> The plant cannot resume operations until federal regulators approve its plans
> Most analysts have been expecting a December restart at the earliest, given the pace of the work so far and the regulatory requirements that remain

Japan warns of undersupplied LNG market (BBG)
> According to a survey of Japanese companies, there are no long-term LNG supply deals available to start before 2026
> Importers will have to be more reliant on the spot market, which normally accounts for about 30% of LNG cargoes
> Japan has historically been one of the largest LNG importers, but with the increase in European demand, competition for cargoes have increased substantially

Watch the Saturday Summary here: https://www.weatherbell.com/premium/

Joe's December weather forecast is very bullish for natural gas prices. ALWAYS remember that the US natural gas market is much different than the global oil market. A cold December could start a bidding war for physical supply, especially if Freeport LNG gets back online.

Notes from RBC Capital on November 20, 2022

Oil Market in 60 Seconds: Thoughts on the Recent Price Blitz
Themes and Sentiment from Investor & Corporate Conversations

 WTI prices have fallen by nearly 14% over the past two weeks. We have wrapped up a whirlwind
tour of investor marketing, calls with E&P management teams and meetings with Boards of
Directors. We fielded many inbound calls to close out last week given the two day 6% retracement
in benchmark pricing. Below are several central themes that featured in our discussions last week:

 The emergence of front month contango was a focal point of discussions on Friday. We deem weak
contract expiration (WTI Dec’22 contract rolls off the board on Monday) as indicative of paper
market selling rather than true physical market softness.

Our measure of North Sea and West African physical indicators of the global marginal barrels are far from strong, but also not
suggesting signs of distress. Tight global inventories do not support the traditional surplus of barrels
rationale for contango. Friday’s headlines of Shell’s Zydeco pipeline running at reduced rates is a
short-term headwind for WTI spreads and arbs, not a curve-bending phenomenon. Spot contract
liquidity in WTI has trended some 46% below normal since the summer. CFTC investor length in
WTI is currently at levels near pandemic lows (Figure 2). Low liquidity is clearly a function of
commodity accounts in risk gross down mode. Beware of thin markets making for volatile pricing
during US Thanksgiving week. Thin trading volumes are a recipe for vicious air pockets.

 The market has not experienced a ‘humped’ forward curve since the Great Financial Crisis. As such,
many market participants have not experienced a strip plagued by front-end contango and term
backwardation. This feature signals a hesitancy to support spot pricing due to a variety of factors
(recession risk, or insert bearish theme here), followed by a structurally tight, multi-year supply
tightness thesis. If the hump persists, it will mark the first time in some 15 years in which the
forward curve is non-linear and not cleanly in contango or backwardation. This dynamic alters how
index funds allocate risk given the augmenting roll yield, how commodity traders deploy relative
value trades across various contract months as well as how corporates may approach hedging.

 Why are NYMEX distillate cracks pricing so strong? Measureable diesel inventories are tight across
most regions across the planet. That is clear, and near term structural. Competition for Atlantic
Basin distillate cargoes has been fierce over recent months given that European distillate
inventories are also tight. That said, strong domestic pricing has led to a flotilla of 11 cargoes
carrying 3.6 mb of distillate earmarked for US shores in early December, which may alleviate some
of the strength in cracks. In short, the distillate crack had to price strong over recent months given
that many distillate cargoes typically pulled to the US, were arbitraged away, elsewhere. European
Gasoil cracks have tapered over recent weeks (Figure 5), and as such, the US is now winning cargoes
back, snatching them from Europe. Watch cracks on both sides of the pond for price on price
competition this winter, but the spread between the NYMEX distillate crack and the European
gasoline crack has recently diverged to the widest point in years. In other words, the US Northeast
can win jump ball cargoes without pricing near current highs of $65/bbl. Distillate cracks have
explosive risk this winter, but current crack divergence suggests that the base level of pricing could
re-rate lower over the near term and still win cargoes. A warm start to the European winter, falling
domestic natural gas prices, softening European macroeconomics and increased Chinese refined
product exports are all currently contributing to softer spot European gasoil cracks, for now.

 With the December 5th EU ban on Russian crude imports approaching, market participants continue
to wrestle with the potential volumes lost due to a tightening of the screws on areas such as
shipping and insurance involving Kremlin barrels.

 Headlines this week suggest that potential of a ghost fleet of near obsolete; decades old oil tankers
otherwise earmarked for the scrapyard are being revived for potential use. Bloomberg reported
that 17 crude cargoes dating at least 20 years old have been amassed since June. This is important
to watch over the coming months, and well discussed among the physical shipping community.

 The panic mode among generalist investors is minimal. We fielded a ton of calls to close out last
week from this cohort. Diamond hands. Why? Energy stocks have traded firmer than the underlying
commodity. Energy equities are working, and even if recession is on the horizon, many recognize
that the energy sector is the ‘cleanest dirty shirt’.