Energy Prospectus

Opening Prices:
> WTI is up $0.17 to $80.30/bbl, and Brent is up $0.08 to $86.21/bbl. < Moving higher after weekly EIA Petroleum Report came out.
> Natural gas is down -15.7c to $3.101/MMBtu.

AEGIS Notes
Oil

Oil was little changed this morning after losing most of last week’s gains yesterday
Mar ’23 WTI gains 17c this morning to trade above $80/Bbl
Although the market has recently been underpinned by hopes for a recovery in Chinese demand, there is still concern about how a global economic slowdown may affect demand
According to a survey from S&P released yesterday, business activity in the United States contracted in January for the seventh consecutive month (Reuters)

Meanwhile, the US dollar strengthened relative to its recent lows
A stronger dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay less for the same amount of goods

US oil refining margins hit a three-month high as refinery outages rise
On Tuesday, the 3-2-1 crack spread, a crucial indicator of refiner profits that measures the difference between the price of crude oil and the selling price of refined products, hit $42.41, the highest since October
High refining margins could be one of the leading indicators of higher gasoline and diesel costs

The U.S. refining system was hit by winter storm Elliott recently, knocking out nearly 1.5 MMBbl/d of operating capacity in December
Refiners are reportedly planning twice as many turnarounds (planned maintenance) this spring than usual, increasing pressure on fuel supply, according to data provider IIR and Reuters < I watched an interview with someone from GasBuddy this morning. He expects average U.S. gasoline prices to increase to over $4.00 by April.
Moreover, inventories of refined products, particularly middle distillates, remain low
Additionally, the EU’s sanctions on Russian fuel products are set to take effect on February 5, further limiting global supplies of refined products

Natural Gas

Natural gas prices are lower by 5% in the prompt month, trading around $3.10 < This is the Henry Hub futures contract for February. See note below on how much higher spot market prices in the West are. Natural gas prices are set by "Regional Supply/Demand Fundamentals" and some our large-cap gassers can take advantage of those differentials.
> The Summer ’23 seasonal strip is down 10c to $3.22, and the Winter ‘23/’24 strip is lower by 8c to $4.13

Weather forecasts have warmed, with the Lower 48 forecast for the next two weeks gaining 7 °F cumulatively

Oil and Gas group backs litigation changes to ease energy permitting (S&P)
> The American Exploration and Production Council has sent lawmakers a list of ideas that they believe will advance permitting reform and make it easier for energy infrastructure projects to be completed < We have a government run by idiots that don't seem to understand how important reliable energy is to our standard of living. They should be working WITH this industry, not against it at every turn.
> The list includes proposed changes to the National Environmental Policy Act, the Endangered Species Act, and the Clean Water Act
> The group also requested that the Interior Department complies with the Mineral Leasing Act and ensures that there are quarterly lease sales and that drilling permits are processed within 30 days
> The political push for energy permitting reform could help speed up the completion of projects such as the Mountain Valley Pipeline

Natural gas spot prices in the western US exceeded $50/MMBtu in December (EIA)
> Gas trading hubs PG&E Citygate, Northwest Sumas, and Malin all recorded prices greater than any other US market, and some of their highest prices since 2000
> Cold weather, reduced Canadian imports, pipeline constraints, and low storage levels in the Pacific region all contributed to the price increases
> Spot prices at PG&E Citygate have since subsided to less than $20/MMBtu

The San Juan Basin Royalty Trust (SJT) is going to some of those high western U.S. gas prices.

Closing Prices:
> Prompt-Month WTI (Mar 23) was up $0.02 on the day, to settle at $80.15
> Prompt-Month Henry Hub (Feb 23) was down $-0.191 on the day, to settle at $3.067

Natural gas futures flounder even as cold front approaches, cash prices strengthen. NGI.
Traders sent natural gas futures lower on Tuesday, even as production declined and weather forecasts pointed to stronger consumption. The February Nymex gas futures contract settled at $3.258/MMBtu, down 18.9 cents day/day. March shed 16.5 cents to $3.057. NGI’s Spot Gas National Avg., in contrast, gained 36.5 cents to $5.725 as new cold fronts formed and threatened to drive fresh rounds of heating demand. The outlook Tuesday from Maxar’s Weather Desk showed below-normal temperatures blanketing much of the Lower 48 in the six- to 10-day and 11- to 15-day periods. For the 11- to 15-day window, models trended colder over the prior 24 hours, according to the forecaster. The pattern would deliver “belows into the South during the mid-period and much to strong belows in the Rockies, Plains, Midwest and at times in the East.” < The weather forecast for the week ending Feb 3 is very bullish for natural gas demand. It will not have an impact on the Feb NYMEX contract, which is what you are seeing reported each day this week.

LNG freight rates sliding with global natural gas prices as Atlantic availability grows. NGI.
The rates charterers pay for vessels to move LNG cargoes across the world are declining, especially in the Atlantic Basin, as global natural gas prices dip and ship availability surges after months of tightness. Spark Commodities on Tuesday assessed spot freight rates for Feb. 8-March 10 deliveries in the Atlantic at $60,500/day, unchanged from Monday. Pacific Basin rates on Tuesday dropped $750 to $82,500/day. It was a $14,500/day drop for the Atlantic and a $21,000/day drop for the Pacific compared to a week prior. Both regions fell well below the average price for last year and in 2021. Spark CEO Tim Mendelssohn told NGI that rates have fallen sharply since the beginning of the year as more vessels have become available amid a slump in demand for cargoes. Increasing tonnage in the market is helping to drag down freight rates, he added.

Natural gas shortages hit China as temperatures plunge. New York Times.
For many people across China, a shortage of natural gas and alarmingly cold temperatures are making a difficult winter unbearable. For Li Yongqiang, they mean freezing nights without heat. “We dare not turn on the heat overnight — after using it for five or six hours, the gas stops again,” Mr. Li, a 45-year-old grocer, said by telephone from his home in northern China’s Hebei Province. “The gas shortage is really affecting our lives.” The lack of natural gas, which is used widely across China to heat homes and businesses, has angered tens of millions of people and spilled over into caustic complaints on social media. The crunch, experts said, has exposed systemic weaknesses in China’s energy regulations and infrastructure, while showing the reach of the global market turmoil provoked last year by Russia’s invasion of Ukraine. < We are blessed in America to have an abundant and affordable natural gas supply. I just hope the idiots we have in Washington DC don't screw this up because it could have a big impact on our standard of living.