Energy Prospectus

Opening Prices:
> WTI is up $0.98 to $75.23/bbl, and Brent is up $1.00 to $80.35/bbl.
> Natural gas is up 17.0c to $5.639/MMBtu.

AEGIS Notes
Oil

Oil bounces off an earlier decline to a one-year low
> WTI gained nearly $1/Bbl this morning to trade above $75/Bbl amid
> The Chinese government ordered officials to cut back on mass testing, and lockdowns in major cities
> Newly reported COVID-19 cases in China have decreased from a daily average of over 40,000 in recent days to 20,764 on Wednesday

As markets enter their typical winter slowdown, there are still concerns about demand as China's Covid-zero policy restrains the activity
> Additionally, despite China starting to ease its Covid-19 curbs, the market might be pricing-in inflation worries to outweigh geopolitical risks and add downward pressure on crude prices
> China's November crude imports hit a ten-month high (BBG)
> Chinese customs reported increased crude imports during November, which climbed to 11.42 MMBbl/d, up 12% from a year earlier
> Chinese state refiners stepped up purchases of U.S. crude oil while maintaining high imports of Russian oil ahead of the Dec 5 EU Russian oil embargo and G7 price cap

AEGIS notes that the high Chinese imports had more to do with the race to buy cheaper crude and an increase in fuel exports as a result of refiners' year-end quotas rather than increased domestic demand

MY TAKE: If China doesn't reverse and slap on more movement restrictions, we should see oil prices drift higher. OECD Petroleum Inventories are very flow based on Days of Consumption and consumption will be going up in Q1 and Europe will be burning a lot of oil for space heating and power generation. Traders are now waiting on the EIA's weekly petroleum report at 10:30 ET.

Natural Gas

Natural gas prices are up 2.5% to $5.60 in the prompt month, ending a multi-day decline
> The Summer ’23 seasonal strip is higher by 9c to $4.68, and the Winter ‘23/’24 strip is up 4c to $5.26
> Weather forecasts shifted cooler today after warming most of the week
> The Lower 48 forecast gained 9 °F in the 6-15 day window, with the Northeast regions forecast gaining a total of 24 °F over the same period

The EIA released its Short-Term Energy Outlook yesterday
> The agency expects the price of natural gas in Q1 2023 to increase from November levels due to higher winter heating demand and increased exports
> However, the EIA believes prices will begin to decline after January as storage levels move closer to the five-year average
> The EIA raised their forecast for natural gas production from 99.7 Bcf/d to 100.4 Bcf/d, although they warn that the growth of gas production in the Permian Basin may be limited by pipeline constraints
> They expect the share of US electricity generated by natural gas to decline from 39% to 37% in 2023 because of increased renewable generation, with the largest shift on the ERCOT grid

US and UK announce energy partnership (Reuters)
> The goal of the partnership announced on Wednesday is to sustain a high level of LNG imports into the UK and collaborate on energy efficiency methods
> British Prime Minister Rishi Sunak said, "This partnership will bring down prices for British consumers and help end Europe's dependence on Russian energy"
> The US will aim to export 350 Bcf to the UK over the next year, while the UK has imported a total of 388 Bcf so far in 2022 < The Biden Administration does not control where LNG cargos go after they leave US ports, so this is just more political stuff. LNG cargos will go to the highest bidder.

Closing Prices:
> Prompt-Month WTI (Jan 23) was down $-2.24 on the day, to settle at $72.01
> Prompt-Month Henry Hub (Jan 23) was up $0.254 on the day, to settle at $5.723

MY TAKE: FEAR of a recession is the only logical reason for oil prices to keep declining. Plus, the "paper traders" that are the primary drivers of the NYMEX price moves are getting margin calls, so they are selling each rise in price, which triggers stop loss orders. Remember that OPEC+ is now in control of the global oil market since they are the only ones with excess supply. They will cut production if necessary to support the oil price. In the US, total petroleum inventories (including the SPR) are at the lowest point since June 2004 and consumption is much higher than it was 18 years ago.

The Natural Gas traders are more driven by supply and demand fundamentals. The weather forecast after 12/15 looks more bullish for ngas demand.

All of our upstream companies are going to report nice Q4 net income (especially those with a lot of Q4 production hedged) and they will be fine if prices firm up at these prices.