Energy Prospectus

Opening Prices:
> WTI is up $0.56 to $71.18/bbl, and Brent is up $0.59 to $76.26/bbl.
> Natural gas is up 4.2c to $2.575/MMBtu.

AEGIS Notes
Oil

Oil surges to its highest in six weeks and heads for a weekly gain
July ’23 WTI gained 66c this morning to trade around $71/Bbl

Expectations of more economic stimulus in China seem to outweigh tight monetary policies in the West
Additionally, China's refinery processing increased in May, reaching the second-highest on record

Moreover, the markets seem to emphasize more on the Fed's rate-hike pause, downplaying the projection of at least two more hikes this year
A weak dollar, heading towards its biggest weekly drop since January, continues to support crude prices
The gasoline premium over crude reached an 11-month high, driven by robust U.S. gasoline demand

AEGIS expects oil prices to see support in 2H2023 as OPEC+ and Saudi voluntary cuts coincide with rebounding demand, causing outsized global inventory withdrawals

New York Sees Gasoline Import Surge Amid Robust Summer Driving Demand (Bloomberg)
Despite a global fuel market slowdown, U.S. gasoline demand, particularly in New York, is soaring due to the onset of the summer travel season and lower pump prices compared to 2022
At its fastest pace since August 2019, New York is importing about 0.47 MMBbl/d of gasoline from various countries
Increased imports have revived the central Atlantic Coast's gasoline inventories, offsetting local refinery issues and limited pipeline capacity

Natural Gas

Natural gas prices are higher, around $2.57, heading for the highest weekly close since March
The Winter ‘23/’24 strip is higher by 5.4c to $3.60, and the Summer ’24 strip is up 2.7c to $3.32 < My forecast/valuation models are based on HH ngas averaging $3.50 in 2024.
Lower 48 weather forecasts shifted warmer by 5.6 °F over the two-week period, with most of the change coming from the Northeast and Midwest, while the South Central forecast cooled slightly < VERY HOT in Houston for June. Texas and Louisiana are going to burn up a lot of ngas for power generation over the next ten days.

Mountain Valley Pipeline developers request more time for Southgate extension (BBG)
The Southgate project is a 75-mile pipeline that would extend MVP from Southern Virginia to North Carolina
If granted approval from FERC, developers will have until June 18, 2026, to bring the project into service
Developers suggested that the approval of MVP could ease permitting troubles for the Southgate project as well

US offshore wind development ramping up (BBG)
Onshore wind generation has increased significantly over the past ten years; however, the US has lagged behind other countries in the development of offshore wind facilities
Construction is occurring at two offshore sites, Vineyard Wind off the coast of Massachusetts, and South Fork Wind near Rhode Island < Despite the fact that this is killing whales.
According to EIA data, about 7.6-GW of offshore wind power is planned to come online by 2030, while the Biden Administration has called for the installation of 30-GW by 2030
7.6-GW of additional wind capacity should lead to about 0.5-Bcf/d of power sector natural gas demand being displaced after adjusting for capacity factors

Here are some notes from OilPrice.com that point to higher oil prices:

For the first time in many weeks, news coming out of China has buoyed oil prices, and the timing couldn't have been better after the Fed hinted at further interest rate hikes and US inventories climbed. China’s issuance of higher oil import quotas and the loosening of Beijing’s monetary policy should see higher activity from Chinese refiners, providing some much-needed demand upside for oil.

IEA Sees India Becoming The Key Oil Demand Driver. According to the International Energy Agency, India will overtake China by 2027 as the largest source of global crude demand growth, with 75% of future global growth in 2023-2028 generally coming from Asian nations.

China Adds Impetus to Buying with New Quota. Giving a new boost to private refineries’ buying in China, authorities in Beijing have issued the 3rd batch of 2023 crude oil import quotas for a total volume of 62.28 million tonnes, taking this year’s total to 194.1 million tonnes, up 20% year-on-year.

Kurdish Producers Count the Losses by The Day. As Iraqi and Turkish negotiators are readying for the resumption of technical talks to restart crude exports from Turkey’s Mediterranean port of Ceyhan, the 80-day halt in loadings has already cost the Kurdish government more than $2 billion.

US Sets 12-Million-Barrel SPR Replenishment Goal. As the US Strategic Petroleum Reserve remains at the lowest level since 1983, the White House is reportedly hoping to buy back at least 12 million barrels this year, implying there will be another 6 million barrels bought in October-December 2023.
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Also, IEA has a long history of under-stating oil demand in their monthly "Oil Market Report" at the beginning of each year and then raising their demand forecast month after month. That is what they are doing again this year. Based on their June report, oil demand will exceed supply by over a million bpd in Q4 2023.

Trading Economics:

"WTI crude futures held above $71 per barrel on Friday after gaining nearly 4% in the previous session, as interest rate cuts in China and a pause in the US Federal Reserve’s tightening campaign bolstered the demand outlook in the world’s two biggest oil consumers. The International Energy Agency said in its latest monthly report that global oil demand will rise by 6% between 2022 and 2028. Oil markets also got a boost from a sharp decline in the dollar, as a weaker greenback makes oil cheaper for holders of other currencies and drives up risk appetite in the markets. Still, investors remain cautious about global economic uncertainties, with weak Chinese economic data and further interest rate hikes by other major central banks clouding the outlook. The European Central Bank delivered another 25 basis point rate hike on Thursday to combat high inflation."

"US natural gas futures extended gains above $2.6/MMBtu, the highest in four weeks buoyed by a smaller-than-expected stock build, along with increased demand and decreased supply. US utilities added 84 billion cubic feet of gas into storage during the week ending June 9, falling short of market expectations of a 95 bcf increase, the EIA said. Furthermore, a projected heatwave from June 23-30 is expected to drive up demand for gas, particularly for power generation used in air conditioning. On the supply side, domestic gas output is declining from the record level of 102.5 bcfpd seen in May. However, gas flowing to US LNG export plants has decreased due to maintenance activities at various facilities, including Cheniere Energy Inc's Sabine Pass LNG in Louisiana." < Cheniere expects to ramp up exports from Sabine Pass next week.

Closing Prices:
> Prompt-Month WTI (Jul 23) was up $1.16 on the day, to settle at $71.78
> Prompt-Month Henry Hub (Jul 23) was up $0.099 on the day, to settle at $2.632

REAL HOT weather is in Texas and moving across the South. We should see a spike in natural gas demand for power generation. Weather is ALWAYS the primary driver of natural gas demand.

Our Sweet 16 had a good week, but still trading at more than an 80% discount to my current valuations. Average of just 3.25 X operating cash flow and six of the Sweet 16 (AR, CPE, CPG, ESTE, VTLE, SBOW) are trading below book value, which is insane for companies of their quality.

I love the ESTE+NOG acquisition of Novo, which is immediately accretive to free cash flow for both companies. ESTE is my Top Pick.