Energy Prospectus

Opening Prices:
> WTI is down $1.64 to $78.04/bbl, and Brent is down $1.72 to $84.94/bbl.
> Natural gas is down -14.0c to $2.709/MMBtu.

AEGIS Notes
Oil

Oil extends losses ahead of a ban on Russian fuels and the Fed meeting
> March ’23 WTI lost $1.64 this morning to trade around $78/Bbl
> The Fed is expected to hike interest rates by 25 bp this week (Jan 31 – Feb 1) < Slowdown in rate hike's should help overall market.
> The EU and G7 are in the planning phases for a price cap on Russian refined oil products that will go into effect on February 5, along with sanctions
> OPEC+ is set to meet on Feb 1 to review crude production levels, and sources from the bloc expect the existing output policy to remain unchanged (Reuters)

Travel in China is surging after the Lunar New Year, which led to an increase in jet fuel and gasoline consumption as the country reopens (BBG)
> China’s Ministry of Culture and Tourism reports that over 300 million trips were made over the holiday, nearly 90% of pre-pandemic levels
> Domestic trips also rose by 80% year-over-year; meanwhile, retail gasoline sales were up 20% from last year
> China’s demand is important as it accounts for over half of the EIA's projected global demand growth of 1 MMBbl/d for 2023

Israel’s attack on an Iranian defense compound has escalated tensions in the middle east (WSJ, BBG)
> An escalation in the region has the potential to disrupt crude flow as nearly 20 MMBbl/d of oil flows through the strait of Homuz
> US efforts to revive a nuclear containment deal with Iran have stalled, but the administration is reportedly considering alternative options
> "The president has always said, while he would prefer a diplomatic, peaceful way to achieve an outcome of Iran not having a nuclear weapon, he isn't going to take other options off the table," said NSC’s Strategic Communications Coordinator John Kirby
MY TAKE: It is surprising to me that an attack on Iran did not cause a big spike in oil prices. Maybe traders are waiting for more details. This definitely adds to the long list of "noise" the paper traders must consider.

Natural Gas

Natural gas prices are down 5% to $2.70 in the prompt month
> The Summer ’23 strip is lower by 14c to $3.04, and the Winter ‘23/’24 strip is down 12c to $3.97
> Weather forecasts have shifted warmer, primarily in the 6-10 day period
> The Midwest forecast warmed by 12.7 °F and the Northeast forecast warmed by 6.8 °F, in the 6-10 day period < Not sure where AEGIS getting their forecasts because the 10-day forecast here looks very bullish for natural gas demand to me: https://weather.com/maps/tendayforecast

Lower gas production expected by CNX Resources in 2023 (S&P)
> CNX Resources’ production in the Appalachian Basin fell during the fourth quarter of 2022 due to supply chain and weather issues
> CNX anticipates 2023 production at 1.55 Bcf/d, down from their 2022 production of 1.589 Bcf/d
> Production in the Appalachian Basin was relatively flat in 2022 amid limited takeaway capacity

The Railroad Commission of Texas warns of severe winter weather (Reuters)
> The energy regulator issued the warning due after the National Weather Service forecasted freezing conditions and ice accumulation for several parts of the state
> ERCOT also issued a notice of a freezing event from Monday through Thursday
> Temperatures in the Permian Basin are expected to fall below freezing for several days this week, which could lead to freeze-offs and a drop in production < Freezing rain in North Texas and Oklahoma may shut down lots of windmills, increasing demand for electricity from natural gas fueled power plants.

Trading Economics:
"WTI crude futures dropped more than 1% to around $78 per barrel on Monday as signs of robust Russian exports and persistent fears of a global economic slowdown spooked investors. Russian oil producers have been able to secure export deals despite Western sanctions and price caps on the back of robust demand from Asia. Still, the reopening of the Chinese economy has given markets reasons to be bullish, with Chinese authorities pledging over the weekend that they would promote consumption recovery as a significant economic driver and boost imports. Meanwhile, in the Middle East, Israel carried out a drone strike against a target in Iran over the weekend, fueling fears of supply disruptions. OPEC will also likely maintain current oil production levels when they meet later this week, keeping global supplies tight."

"US natural gas futures tumbled more than 3% to around $2.7/MMBtu, the lowest since April 2021, on expectations of lower demand after forecasts pointed to milder weather across most of the US and as production remained steady. Output held above 100 Bcf/d on Friday and through most of the last week, leaving it within reach of record levels around 102 Bcf/d. Meanwhile, the Freeport LNG export facility in Texas was allowed to restart production. However, it will not be able to fully relaunch in January leaving more gas on the domestic market. US natural gas prices are down more than 40% in January, the worst month since December 2018, and are over 70% off their August peak of $10 as milder weather has delayed the wintering heating season." < Someone needs to explain how wind chill below zero all week in Chicago is "milder weather".

Closing Prices:
> Prompt-Month WTI (Mar 23) was down $-1.78 on the day, to settle at $77.90
> Prompt-Month Henry Hub (Mar 23) was down $-0.172 on the day, to settle at $2.677

Overall market weakness: "U.S. stocks tumbled as investors await a blockbuster week that includes the latest Fed meeting, a flurry of heavyweight earnings reports, and jobs data." Plus, some oil traders are worried about what OPEC+ might do or maybe how Iran will respond to the attacks from Israel.

IMO HH gas is now way oversold.