Energy Prospectus

Opening Prices
> WTI is up $0.07 to $73.78/bbl, and Brent is up $0.06 to $77.50/bbl.
> Natural gas is down -4.2c to $2.225/MMBtu.

AEGIS Notes
Oil

Oil extends gains following a three-day advance ahead of U.S. inflation data
June ’23 WTI gained nearly 11c this morning to trade around $73.82/Bbl
Equities and the dollar are trading lower ahead of the release of the April CPI report this morning
The EIA’s May STEO report forecasts an increase in demand from India and China, which is expected to offset the demand weakness in the West

Biden administration announces timeline for replenishing SPR (BBG)
Following maintenance work later this year, the Biden administration has announced plans to restock the SPR, which is currently at historic lows after 180 MMBbl were drawn to curb fuel prices
The replenishment will involve both direct oil purchases and returns of oil from previous exchanges requested by refineries
The Biden administration plans to refill oil reserves when prices reach about $70/Bbl < So, the SPR refill is unlikely to start this year or in 2024.
The pace of repairs and the start of this purchase, which could strain the tight market, will be closely watched by market participants

Russia nearly reaches oil output cut goal in April, says Russia's Energy Ministry (BBG)
Russia's Energy Ministry reports that the country almost achieved its pledged oil output reduction target in April
According to Russia’s Energy Ministry data, Russia's crude oil production in April averaged 9.67 MMBbl/d, showing a reduction of 0.443 MMBbl/d from February's production level
However, seaborne crude exports, particularly to China, India, and Turkey, haven't reflected these cuts. As of May 5, the four-week average volume reached a record high of 3.55 MMBbl/d

Natural Gas

Natural gas prices are trading lower, around $2.23, after climbing 3c yesterday
The Summer ’23 strip is trading around $2.42, and the Winter ‘23/’24 strip is at $3.44
Lower 48 average temperatures are expected to rise above 65 °F today, which should increase natural gas demand from the power sector

EIA forecasts high power sector demand for natural gas this summer (BBG)
In its latest monthly report, the EIA said that they expect power sector demand for natural gas this summer to come in at the second highest level on record
Their forecast is based on coal plant retirements and their expectation of warmer-than-average weather conditions
However, they do not believe gas consumption will be larger than last summer due to increased electricity generation from renewable sources and improved hydroelectric generation in the western US

Texas lawmakers push for additional gas-fired power generation (BBG)
Last week, the Texas state senate proposed a new bill that would provide zero-interest loans for the construction of dispatchable natural gas power plants and pay a completion bonus if the project is finished by 2026
Another bill approved by the Senate would add new restrictions to the construction of wind and solar projects

Trading Economics:

Oil
"WTI crude oil futures fell past $73 per barrel on Wednesday, halting a three-day advance as an unexpected increase in US inventories solidified evidence of low demand, offsetting the dollar’s retreat after a cooler-than-expected inflation print. Crude oil stocks rose by nearly 3 million barrels on the week ending May 5th, according to data from the EIA, defying expectations of a 900 thousand barrel decline and consistent with a previous report from the API. Elsewhere, trade data from China showed that crude oil imports fell 16% annually to 10.6 million barrels per day in April, adding to fears of an economic slowdown in Asia’s largest economy. The developments pared earlier gains from the week after the Biden administration said it canceled the sale of 140 million barrels from the Strategic Petroleum Reserve and added that it will purchase crude to refill the SPR later this year." < No mention of how low gasoline and diesel inventories are; 7% and 16% below normal.

Natural Gas
"US natural gas futures hovered near the $2.2/MMBtu mark, following an over 11% weekly loss due to a rise in domestic gas output, lower LNG exports due to spring maintenance and reduced heating demand. While the average gas output in the US Lower 48 states has hit a new high of 101.7 billion cubic feet per day (bcfd) so far in May, gas demand, including exports, is set to decline to 92.1 bcfd this week and 91.7 bcfd in two weeks. Meteorologists projected the weather would remain mostly warmer than normal from May 5-16 and is expected to return to near-normal levels from May 17-20. Additionally, gas flows to the seven big US LNG export plants slid to an average of 13.3 bcfd so far in May, down from a record 14.0 bcfd in April, mainly due to reductions at Cameron LNG's terminal in Louisiana, Cheniere Energy Inc's LNG.A Sabine Pass in Louisiana and Freeport LNG's terminal in Texas."

Closing Prices:
> Prompt-Month WTI (Jun 23) was down $-1.15 on the day, to settle at $72.56
> Prompt-Month Henry Hub (Jun 23) was down $-0.076 on the day, to settle at $2.191

MY TAKE: Oil prices are going to stay on this "roller coaster ride" for a few months because of all the "noise" (Fear of Recession, Fear of the Fed, and idiots debating the nation's debt ceiling). Early in Q3 it will become clear that global oil demand will exceed supply in 2H 2023. That's when the fun begins.