Energy Prospectus

Opening Prices:
> WTI is down $0.67 to $78.29/bbl, and Brent is down $0.71 to $82.55/bbl.
> Natural gas is down -10.5c to $4.58/MMBtu.

AEGIS Notes
Oil

Oil extends losses amid less liquidity in the markets
> Feb ’23 WTI lost nearly 70c this morning to trade around $78/Bbl
> Concerns about how smoothly China will reopen and whether the country can sustain the eased restrictions persist
>Yesterday, nations including the U.S. and Italy said they would require airline passengers from China to show negative virus tests as new cases soar
> Covid spike in China, the largest importer of crude, dampens near-term oil demand, but AEGIS notes that demand could see an uptick after the initial Covid waves

However, the USD Index (DXY – a proxy for U.S. Dollar strength against a basket of six international currencies) continued to weaken relative to its recent 20-year highs. A weaker dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay less for the same amount of goods.

The U.S. joined various countries in requiring airline passengers from China to show negative virus tests, and they are considering additional measures (BBG)
> The move comes with a surge in Covid cases in China as the nation abandons its Covid-zero policy
> This week, similar regulations were also imposed in Italy, Japan, and Taiwan, while other countries are considering their options
> China is set to scrap its quarantine requirement for inbound travelers from Jan 8 despite the surge in virus cases, and it is estimated that over 37 million people were infected in a single day last week
> Although the EIA projects a 0.600 MMBbl/d or 4% year-over-year growth in China’s oil demand to 15.76 MMBbl/d in 2023, a sharp increase in demand early next year could be unlikely

Natural Gas

Natural gas prices are lower by about 3% to $4.58 in the prompt month
> The Summer ’23 strip is down 12c to $4.05, and the Winter ‘23/’24 strip is down 12c to $4.71
> Both the Summer ’23 and Winter ‘23/’24 seasonal strips are trading at new six-month lows
> Weather forecasts for the Lower 48 have warmed by a total of 12 °F in the 1-15 day period, with the first half of January expected to be warmer than normal

Growth in electric heating contributed to blackouts during last week’s winter storm (BBG)
> Tennessee, North Carolina, and South Carolina were forced to curtail power demand last week as their grids were stretched by increased demand for space heating. The number of homes using electric heating in these states has increased by 20% from 2009, while power generation capacity in these states has remained mostly flat and more dependent on natural gas.
> Former FERC chairman Pat Wood said that “we have moved too swiftly over the past two decades to electrify residential heating.”

EQT’s gas production fell 30% last week (BBG)
> The largest US gas producer said that their production fell by about 30%, or 1.5 Bcf/d, because of freezing conditions
> The company expects any remaining issues to be resolved in the next few days while saying that the drop in production was normal under the circumstances

Energy Economics

WTI crude futures partially cut earlier losses to hover around $78 per barrel on Thursday, but still extended the retreat from the three-week high of $81 hit this week as investors continued to weigh on the impact that China’s reopening could have on global energy markets. While the end of strict lockdowns initially increased projections of oil demand for the world’s top consumer, soaring infections raised concerns of Covid restrictions elsewhere and ramped up worries of prolonged inflation and monetary tightening, pressuring prices in oil benchmarks. Meanwhile, oil prices remain supported by supply concerns after Moscow moved to ban exports of Russian crude oil and refined products to foreign buyers that adopt the G7 price cap from February 1 until at least July 2023. The US oil benchmark is set to close the year marginally higher despite hitting a 14-year high of $130 per barrel in March.

US natural gas futures were trading below $4.5/MMBtu at the end of 2022, the lowest in over nine months, amid prospects of lower heating demand on forecasts for much warmer-than-normal temperatures this week and extending into early January. Also, concerns about supply disruptions including wells and pipes froze due to extreme cold eased. At the same time, the Freeport LNG export plant in Texas, forced to go offline in June following a fire, again delayed the restart to the second half of January, pending regulatory approval. The benchmark is still up more than 30% in 2022 as Russia's invasion of Ukraine and the unprecedented economic sanctions have thrown the global energy market into chaos. Still, prices were down more than 50% from their March peak of roughly $10 as some of these concerns about tight supplies eased.

Closing Prices:
> Prompt-Month WTI (Feb 23) was down $-0.56 on the day, to settle at $78.40
> Prompt-Month Henry Hub (Feb 23) was down $-0.126 on the day, to settle at $4.559