Energy Prospectus

AEGIS has a webcast today at 2PM CT. You need to register at this link if you wish to attend the live webcast.
https://aegis-hedging.com/news/aegis-webcast-april-2023-energy-market-updates?utm_campaign=AEGIS%20First%2FLast%20Market%20Looks%20%26%20Alerts&utm_medium=email&_hsmi=253335617&_hsenc=p2ANqtz-8Ynl-fOwbPf1IpgAMm7F60ub_WxuIsI-_rGXwivWQKZX5lHbWXF2melQ74l5FlprEZMV4_NeZ8ZzKPI0zhds-vCJKrjg&utm_content=253335617&utm_source=hs_email

Opening Prices:
> WTI is up $0.06 to $80.67/bbl, and Brent is up $0.12 to $85.11/bbl. < Price dipped soon after the markets opened due to more noise about economic weakness, Fear of the Fed, weakness in the jobs market, etc. Lots of noise these days and strong resistance at $81.
> Natural gas is down -3.1c to $2.124/MMBtu. (As of 08:15 AM CDT)

AEGIS Notes with my comments in blue
Oil

Oil heads for a third consecutive weekly gain following OPEC+ cut
May ’23 WTI gains 6c this morning to trade around $80.67/Bbl

Crude rose nearly $5, or 6.5%, this week after OPEC+’s surprise 1.66 MMBbl/d production cut
Additionally, the U.S. Dollar fell to its lowest in two months, making oil more affordable for holders of other currencies
Also, the market awaits Friday’s U.S. non-farm payrolls data amidst weak economic indicators from China and the U.S., raising demand concerns

Saudi Arabia raises oil prices to Asia after OPEC+ surprise cut (BBG)
Saudi Arabia increased the selling price for its flagship Arab Light crude to Asia by $0.30/Bbl in May, raising prices for a third consecutive month
The price hike follows the surprise decision by OPEC+ to cut 1.66 MMBbl/d output starting May, with Saudi Arabia agreeing to slash production by 0.5 MMBbl/d
Aramco maintains prices for Europe and Mediterranean customers, signaling that the kingdom expects strong demand in Asia, which accounts for 60% of its crude shipments

Chinese private refiners increase purchases of Iranian oil amidst rising competition for Russian supplies (BBG)
Chinese private refiners, known as teapots, are purchasing more Iranian oil due to increased competition for Russian supplies
In March, China's imports of Iranian crude and condensate rose by 20% month-on-month to 0.8 MMBbl/d, with further increases expected
Russian supplies are getting expensive as state-owned Chinese refiners and Indian refiners take a greater share
Teapots are choosing Iranian oil over Russian supplies due to a $12/Bbl discount to ICE Brent for May delivery of Iranian oil compared to ESPO's $10 discount and Urals' $6 discount, according to traders
Team Biden has basically stopped enforcing the sanctions against Iran. China and Iran are benefitting from the war in Ukraine.

Natural Gas

Natural gas prices are down slightly, around $2.12, heading for a weekly loss
Weather forecasts shifted cooler overnight, with the Lower 48 forecast losing 10.3 °F over the two-week period
We are doing our part, Susan turned on the furnace last night.

While demand is expected to be subdued over the next few weeks, natural gas power burns are expected to remain high compared to last year as gas continues to hold a larger share of the power stack

Dominion Energy and National Grid looking to sell pipeline assets (Reuters)
Both companies are separately considering sales of portions of their US pipeline networks
Dominion is looking to sell a portion of its North Carolina, Ohio, and Western US assets, while National Grid is exploring a sale of part of its Northeastern US pipeline network

Natural gas prices in Asia remain at a 21-month low (Reuters)
The average price for LNG cargoes delivered to Northeast Asia was $12.50/MMbtu as of last week, down more than 82% from the 2022 peak of $70.50/MMbtu
Limited demand in Asia and Europe has kept LNG prices subdued as storage levels in both regions are relatively healthy
Brokerage Tullett Prebon said, however, that demand in Asia has increased due to the lower prices, with Thailand and the Philippines lifting several cargoes after being inactive in the market due to high prices
Most recent LNG price I see for Europe is $15.01

Astros game in Minneapolis today postponed. 10 degrees when I checked a while ago. Game in Cincinnati as well

Turn up the heat!!!

(Dow Jones) -- Russia and members of the Organization of the Petroleum
Exporting Countries dropped another bombshell on global markets this past
weekend -- an additional planned production cut of 1.66 million barrels a day
starting in May. Brent oil prices promptly spiked 6%.

The move by major oil exporters may reflect concerns about global demand, but
signals emerging from China -- the world's largest crude importer -- strongly
suggest that its recovery in oil demand has further to run. That will help
underpin global oil prices even if U.S. demand weakens significantly. And a
larger bump in Chinese demand is still likely later this year as China's
property and tourism sectors find steadier footing.

China hasn't yet released its main March industrial data, meaning crucial
direct gauges of demand such as refinery runs aren't yet available. But the
health of the two main sectors driving oil consumption -- transport and
housing-related heavy industry -- are now quite clearly on the mend, and the
pace of improvement is accelerating.

China's official March nonmanufacturing purchasing managers index clocked in
at 58.2, which was its highest since 2011. The PMI was over 60 for road, rail
and air transport, notes Pantheon Economics. The separate service sector gauge
from IHS Markit and Caixin painted a similar picture: it hit 57.8, its highest
since June 2020.

Moreover both the air and highway passenger transport sectors clearly still
have room to run. In passenger-kilometer terms, domestic air traffic was still
only at about 75% of late 2019 levels in February, while highway passenger
traffic was only at about a third of prepandemic levels, according to figures
from data provider CEIC.

The housing market and energy-intensive heavy industrial sectors look less
ruddy, but they are still clearly improving. Housing floor space completed
rose year over year for the first time since 2021 in the first two months of
2023 and steel production rebounded sharply. Housing space sold still edged
down by 0.6%, but that was the smallest dip since mid-2021. China's housing
market rebound is still at an early stage. By late 2023, it seems likely to be
a more significant factor supporting oil prices.

The recent $5 a barrel jump in global oil prices isn't likely to put much of a
dent in Chinese oil demand either. For one, Chinese diesel and gasoline prices
still benefit from some residual price controls -- meaning they reflect moves
in global benchmarks only with a lag and not always in full. Given the clear
shift in Beijing's policy orientation toward growth this year, Chinese
refiners are very likely to have to eat some of the cost of rising crude
prices should Beijing conclude that high energy costs are starting to
constrain the recovery.

The benefit won't be extreme, though -- there is no Chinese housing-led
commodities bacchanal in the offing this time. Some of the damage of the past
few years to the housing market will persist, and stimulus measures in 2023
have been cautious so far. But the nation's oil demand will continue to
rebound throughout the year. That makes significantly lower prices quite
unlikely, even assuming a further downshift in U.S. growth.

Closing Prices:
> Prompt-Month WTI (May 23) was up $0.09 on the day, to settle at $80.70
> Prompt-Month Henry Hub (May 23) was down $-0.144 on the day, to settle at $2.011

MY TAKE:
Per AEGIS webcast, WTI price risk is to the upside.
Why?
> China demand growth is real.
> U.S. and OECD inventories of gasoline and diesel are already lower than normal.
> New OPEC+ production cuts starting in May will make supply shortage worse.
> Summer blends of gasoline require more "black oil" and demand for gasoline always goes up in May/June.
> Diesel shortages are even worse.
> Jet fuel demand also expected to go up this summer.
> Significant shortages of octane will make premium gasoline prices much higher.
> Risk of Recession in the U.S. is now 60% and likelihood of a major global recession is very small.
> Hedge funds have a lot of "dry powder" and next IEA "Oil Market Report" could send WTI above the strong resistance at $81.

U.S. natural gas market is likely over-supplied until 2H 2024. Hot summer weather and more coal-to-gas fuel switching for power generation is only hope for ngas prices to move over $3.00 this summer. 18 months from now the outlook for natural gas looks very bullish.