Energy Prospectus

Opening Prices:
> WTI is up $0.17 to $78.56/bbl, and Brent is up $0.09 to $84.12/bbl.
> Natural gas is down -11.6c to $3.579/MMBtu.

AEGIS NOTES
OIL

Oil heads for a weekly gain amid expectations of a rebound in Chinese demand and less aggressive interest rate hikes
Feb ’23 WTI gained nearly $4.50, or 6.5%, this week to trade around $78/Bbl
The market continues to be optimistic about a recovery in Chinese demand as the country lifts Covid restrictions ahead of the country’s Lunar New Year travel season
China also increased purchases of crude after refiner quotas were increased

Crude gained for the sixth consecutive day yesterday after US CPI data was in line with expectations
Inflation moderated for the first time monthly since 2020, signaling that the Fed won’t have to accelerate the pace of future rate hikes

The USD Index (DXY – a proxy for U.S. Dollar strength against a basket of six international currencies) fell to the lowest in nearly seven months
A weaker dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay more for the same amount of goods

Chinese oil consumption is expected to hit a record high this year as the nation abandons its Covid Zero policy (BBG)
According to the median prediction of 11 China-focused consultants surveyed by Bloomberg, daily demand, which decreased last year, will increase by 0.8 MMBbl/d in 2023
According to the survey, that would bring usage to an all-time high of almost 16 MMBbl/d
China’s demand is important as it is nearly half of the global demand growth in 2023, which is expected to grow anywhere from 1.0 to 1.7 MMBbl/d

China increased crude purchases from markets in North America, West Africa, the North Sea, and the Mediterranean this week for arrival in March and April (BBG)
The volumes of US and Canadian grades, including Mars, WTI, Midland, and Cold Lake that have been purchased over the last few weeks are estimated to be approximately 10 MMBbl, the most since October
Additionally, UNIPEC, a major oil trader, also purchased about 6 MMBbl of Caspian CPC Blend this week
Demand is expected to rise in China, particularly after the Lunar New Year at the end of this month

NATURAL GAS

Natural gas prices are lower by about 4%, heading for the fifth consecutive lower weekly close
The Summer ’23 seasonal strip is down 9c to $3.46, and the Winter ‘23/’24 strip is off by 8c to $4.32

Yesterday the EIA reported a storage injection of 11 Bcf
This was the first time a storage injection was reported for the first week of January instead of a withdrawal
Unseasonably warm weather led to a significant reduction in demand for natural gas during the reported week

Freeport LNG cancels cargo loadings (BBG)
The export facility has canceled the loadings of two cargoes scheduled for the end of January and the beginning of February
Earlier this week Freeport reaffirmed its restart timeline, continuing to guide toward a resumption of operations in the second half of January
The cancelation leads to further speculation that the restart may be delayed again

PJM investigates winter storm supply shortage (Reuters)
For several days some power generators were unable to increase output in the PJM system, potentially leading to over $2 billion in fines
70% of the generators that underperformed were natural gas-powered and were impacted by pipeline fuel loss from the Marcellus-Utica region
PJM underestimated demand by 10% and said that demand exceeded the amount of upstream supply available

OilPrice.com

There is plenty of uncertainty in oil markets at the moment, particularly regarding the timing of China's demand recovery as it moves away from its zero-Covid policy. Despite that uncertainty, oil prices have been buoyed by promising US inflation data, with consumer prices falling for the first time in more than two and a half years. WTI is now flirting with the $80 per barrel threshold again while Brent is nearing $85.

LNG Flows Are Shooting Through the Roof. With Europe's desire to replace Russian pipeline gas making it the premium market for liquefied natural gas around the world, global volumes of LNG imports have increased by 7% year-on-year to 409 million tons, the highest on record.

Freeport LNG Restart Remains Uncertain. After a Reuters report claiming that the much-anticipated restart of the Freeport LNG liquefaction facility in Texas would be delayed into February due to the lack of regulatory approvals, the company reiterated its objective to relaunch the plant in the second half of January.

Market Watch

Oil futures on Friday posted a gain of more than 8% for the week, supported by optimism over demand from China as the country lifts its strict COVID-19 curbs and reopens its economy.

Price action
West Texas Intermediate crude for February delivery CL00, 1.96% CL.1, 1.96% CLG23, 1.96% rose $1.47, or 1.9%, to settle at $79.86 a barrel on the New York Mercantile Exchange, up 8.3% for the week, according to Dow Jones Market Data.

March Brent crude BRN00, 0.06% BRNH23, 0.06%, the global benchmark, added $1.25, or 1.5%, at $85.28 a barrel on ICE Futures Europe, for a 8.5% weekly advance. Brent, as well as WTI, saw their highest settlements since Dec. 30.

Back on Nymex, February gasoline RBG23, 2.34% rose 2.3% to $2.5328 a gallon, for a weekly rise of 12.8%, while February heating oil HOG23, 1.54% added nearly 1.2% to $3.2559 a gallon, tacking on 8.4% for the week.

February natural gas NGG23, -5.71% fell 7.5% to settle at $3.419 per million British thermal units, ending 7.8% lower for the week.

Market drivers
China’s economic reopening was the “top mover for oil this week,” but improved inflation data also made people more “optimistic about the U.S. economy either heading for a soft landing or a mild recession,” Michael Lynch, president of Strategic Energy & Economic Research, told MarketWatch.

The weaker dollar is also likely a “minor factor moving prices up,” he said.

This week’s move higher for oil erased the previous week’s steep slide.

Trading volume has climbed on expectations of “record-breaking Chinese oil demand, as well as expectations that the Fed will only raise rates by a quarter point in February,” giving signs of easing inflation in the CPI data, said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report.

U.S. data released Thursday showed the annual rate of inflation fell for the sixth month in a row to 6.5% from 7.1%, or the lowest level in more than a year.