Energy Prospectus

Opening Prices:
> WTI is up $0.65 to $75.48/bbl, and Brent is up $0.54 to $79.94/bbl. < WTI moved up to $76.00 within 40 after the EIA weekly petroleum report, which on the surface looked bearish.
> Natural gas is down -6.4c to $2.667/MMBtu. As of 08:01 AM CDT

AEGIS Notes
Oil

Oil trades at a ten-week high as inflation cools and OPEC cuts start to bite
> August ’23 WTI gained 65c this morning to trade around $75.48/Bbl
> June CPI data showed that consumer prices rose 3%, their slowest pace in two years. Core CPI rose 0.2%, below expectations
> Oil prices were also supported by a weaker dollar and optimism surrounding Chinese stimulus
> Forecasts from EIA and IEA expect the market to tighten in the second half of 2023 into 2024
> Russian seaborne crude exports for the week to July 9 fell to 2.86 MMBbl/d, which was a nearly 1 MMBbl/d decline from the previous week

Chinese diesel exports surge as domestic demand falls, margins rise (BBG)
> Chinese diesel exports have surged in July, averaging more than 0.3 MMBbl/d, the highest since April, according to Vortexa
> Chinese diesel exports have increased likely due to a seasonal drop in domestic demand and a lackluster economic recovery and could potentially hurt the margins of other Asian refiners
> State refiners are set to raise runs to 10 MMBbl/d this month, the highest rate this year, after seasonal maintenance came to an end

Natural Gas

Natural gas prices are down 3.3% amid cooler weather forecasts
> The Winter ‘23/’24 strip is down 6.6c to $3.51, and the Summer ’24 strip is lower by 4.7c to $3.28
> Lower 48 weather forecasts shifted cooler by 10.2 °F over the two-week period, with the Northeast, Midwest, South Central, and Southeast regional forecasts all cooling significantly < Please send some of that cool air down to Houston.

Sabine Pass seeks approval for third ship berth (S&P)
> LNG exporter Cheniere Energy has written to FERC to request approval to bring their third berth into service
> The additional berth would increase the number of cargoes that could be shipped per year from 400 to 580
> The request comes as the company has been working on commercializing an expansion to the facility, which would add three additional trains bringing the total number of trains to nine < This is a reminder that in addition to new LNG export facilities coming on line from mid-2024 to 2027, four existing export facilities are expected to increase their export capacity. By the end of 2027, U.S. total export capacity (including via pipelines) should be close to 40 Bcfpd.

Mid-Continent basis widens (S&P)
> The average regional spot price for lower Mid-Cont basis locations is trading at a 35c discount to Henry Hub, 23c wider than last month’s average
> Demand has been below average recently, coming in at 7.2-Bcf/d in July, compared to the April-June average of 9.4-Bcf/d
> Outflows to the South Central from the Mid-Cont have been significantly weaker than normal, averaging 1.5-Bcf/d in June, but only 0.2-Bcf/d in July < Instead of wasting more money on windmills, Texas should be putting more natural gas fired power plants in the Permian Basin. The electricity from them will be much cheaper and more reliable than windmills.
> The South Central is receiving more gas on the ANR and Tennessee Gas Pipeline while receiving less on the Texas Gas Transmission and Trunkline pipelines

Trading Economics:
"WTI crude futures rose nearly 1% to above $75.5 a barrel on Wednesday, hovering at the highest levels in over two months, as investors welcomed signs of cooling inflation in the US, which offered some support the Fed's tightening cycle may be close to an end. At the same time, a weaker dollar, optimism that Chinese authorities will unveil further measures to boost growth and signs that Russian crude output is starting to decrease also supported the oil market. Vessel tracking data showed shipments through Russia’s western ports in the four weeks to July 9 dropped substantially, more than four months after the OPEC+ producer was due to slash output, Bloomberg reported. Saudi Arabia and Russia announced additional production cuts for August. On the other hand, EIA data showed US crude inventories unexpectedly surged by 5.95 million barrels last week, the first add in four weeks, and way higher than market forecasts of a 0.483 million increase."

I just found out U.S. crude oil inventories were up due primarily to 1.4 million barrels decline in exports and 400,000 barrel moved from the SPR to commercial inventories.

Closing Prices:
> Prompt-Month WTI (Aug 23) was up $0.92 on the day, to settle at $75.75
> Prompt-Month Henry Hub (Aug 23) was down $-0.099 on the day, to settle at $2.632

As I discussed in the July 8 podcast (at the end), the near-term outlook for natural gas prices is not bullish. All of our "gassers" are generating solid operating cash flow with HH gas over $2.50, but they won't take off until mid-2024 when investors start believing in the big increase in demand coming in 2025. Beyond 2024, the outlook for natural gas should turn very bullish. EQT is the safe bet because they have some very good hedges in place for 2023.