Energy Prospectus

Opening Prices:
> WTI is down $0.16 to $75.59/bbl, and Brent is down $0.08 to $80.03/bbl.
> Natural gas is up 0.8c to $2.64/MMBtu. As of 08:00 AM CDT

Why did WTI move higher yesterday even though EIA reported a build in U.S. crude oil inventories?
MY TAKE:
> Primary Reason: U.S. Department of Energy data published yesterday shows U.S. crude exports slumped sharply in the week ending July 7 (2.144 million b/d from 3.901 million b/d the week before and 5.338 million b/d two weeks ago).
Simple Math: (3.901 - 2.144) X 7 days = 12.299 million barrels
> Also, 401,000 barrels were moved from the SPR to commercial inventories.
> EIA reported a 100,000 barrels per day decline in U.S. oil production during the week ending July 7.

AEGIS Notes
Oil

Oil steady as the dollar weakens, US inflation cools, and IEA forecasts record demand
August ’23 WTI lost 14c this morning to trade around $75.65/Bbl
Equities trade higher while the U.S. dollar plunged to the lowest since April 2022
June's CPI data indicated a 3% rise, the slowest in two years, while Core CPI only increased by 0.2%, below expectations

IEA lowered its forecast for global oil demand by 0.22 MMBbl/d to 2.2 MMBbl/d for 2023
Despite economic and rate hike headwinds, the agency expects record demand this year to substantially lower inventories in H2
Furthermore, the agency forecasts that 70% of this record demand growth will stem solely from China
Additionally, total oil exports out of Russia fell by 0.6 MMBbl/d to 7.3 MMBbl/d in June

China’s crude imports hit a three-year high (BBG)
China's crude oil imports rose by approximately 5% from May, hitting a three-year peak of 12.72 MMBbl/d
Chinese state refiners’ returning from maintenance and independent refiners being granted more quotas aided the jump in imports
With weak domestic demand, China's refiners, leveraging high margins, are prioritizing exports, signaling potential growth in global fuel shipments, according to JLC < China buy cheap oil from Russia and selling diesel with high profit margins to others in Asia. China is a lot smarter than we are. Maybe because they don't have crack heads running the country.

Asia turns to US oil amid Saudi production cuts and price hikes (BBG)
About 18 supertankers carrying 36 MMBbl of US crude are heading to Asia for October arrival, indicating a rising appetite for American oil
With Brent soaring past $80/Bbl and Saudi Arabia's supply cuts and price increases, Asian refiners are considering US shipments as an alternative
Additionally, lower North Sea oil prices relative to middle eastern oil and freight rates hint at Asian refiners possibly sourcing more from distant European and American producers

Natural Gas

Natural gas prices little changed, trading around $2.64, after falling 10c yesterday
Weather forecasts were mostly unchanged, apart from the Midwest region, where weather models shifted cooler by 11 °F over the two-week period
Lower 48 gas production remains lower, around 100.5-Bcf/d, due to pipeline maintenance in the Northeast
LNG feedgas levels have come off this week with export facilities taking 12-Bcf/d this morning, down 1-Bcf/d from last week

NextDecade reaches final investment decision on Rio Grande LNG (BBG)
The company has secured $18.4 billion in financing, while the total cost of the project will be about $12 billion for the first phase
The first phase of the facility will have a nameplate capacity of 2.35-Bcf/d and begin to supply customers starting in 2027
Rio Grande is the third LNG project to secure a FID this year, following Venture Global’s Plaquemines LNG and Sempra’s Port Arthur LNG

Appalachian gas production flat (EIA)
Production in the Appalachian basin remained steady in 2022; however, output from four key counties declined
The Susquehanna, Washington, Bradford, and Greene counties produced 40% of all gas produced in Appalachia, but output from these counties declined by 3% from year-ago levels
The decline in output has been attributed to productivity declines and limited takeaway capacity
Drilling efficiency in Pennsylvania declined for the first time in 2022 after rising every year since 2013

Summary of OPEC's monthly report from Bloomberg:

OPEC predicted an even tighter global oil market next year, as the group anticipates a much bigger demand increase than other major forecasters.

World oil consumption will climb by 2.2 million barrels a day next year to reach 104.3 million a day, the organization said on Thursday in its first detailed assessment of 2024. That’s the double the growth rate projected by the International Energy Agency, which advises consuming nations. < As I have posted here many times, IEA has a long history of underestimating oil demand at the beginning of each year.

The demand increase would outstrip the projected boost in supply from outside the cartel, pushing the world’s daily appetite for OPEC’s crude to 30.2 million barrels — or roughly 2 million barrels more than it pumped last month. That could allow the group to ease production constraints it’s making this year to shore up prices. < The global economy will need every barrel of oil OPEC can supply to keep up with demand. In other words, the OPEC "cushion" will be gone soon.

Saudi Arabia and its partners have curbed output to balance markets amid a faltering global economy and unexpectedly robust supplies from exporters including Iran and Russia, both of which are both part of a wider alliance known as OPEC+.

Oil prices climbed above $80 a barrel in London on Wednesday for the first time in two months as those supply curbs, which include extra unilateral cuts by the Saudis in July and August, tighten markets. Demand in China also appears robust despite shaky economic indicators.

The Paris-based IEA, which also released its latest outlook on Thursday, sees demand growing by 1.1 million barrels a day next year. The expansion in oil consumption will be limited by improving fuel efficiency and the burgeoning popularity of electric vehicles, the agency said. < IEA says stuff like this because they are based in Paris and this is what their bosses want to hear.

The 13 members of the Organization of Petroleum Exporting Countries pumped an average of 28.2 million barrels a day in June, fractionally more than the previous month, according to the report. The 23-nation OPEC+ alliance is formally due to hold a monitoring meeting next month, though no date has yet been set. The coalition is scheduled to have a full ministerial meeting on Nov. 26.

Closing Prices:
> Prompt-Month WTI (Aug 23) was up $1.14 on the day, to settle at $76.89
> Prompt-Month Henry Hub (Aug 23) was down $-0.087 on the day, to settle at $2.545

Oil surges to highest in 11 weeks following Libyan supply outages. BTW there is the potential problems in Libya that could take a lot of oil off the market. Keep in mind that demand for oil already exceeds supply by ~2 million bpd.

Reuters is reporting that Production shuts at Libya's El Feel, Sharara and 108 oilfields -tribal leader, oil engineers
Story by Reuters • after the markets closed

BENGHAZI, July 13 (Reuters) - Production at Libya's El Feel, Sharara and 108 oilfields was shut on Thursday in a protest against the abduction of a former finance minister, a tribal leader told Reuters on Thursday.

The shutdown was confirmed by oil engineers and a protester.

It is a protest by the Al-Zawi tribe against the kidnapping of Faraj Bumatari, a former finance minister, according to the tribal leader.

The protesters released a video statement from the 108 oilfield saying while they closed a valve: "We affirm the continuation of the oil closures, and we may escalate the situation to more than that if our son, Faraj Bumatari, is not released."

No protesters have entered the Sharara oilfield so far, two engineers working in the field told Reuters on Thursday.

The Sharara field , one of Libya's largest production areas with capacity of 300,000 barrels per day, has been a frequent target for several political reasons and demands by local protesters.

The field is located in Murzuq basin in the southeast of Libya. It's run by the state oil firm NOC via Acacus company with Spain's Repsol, France's Total, Austria's OMV, and Norway's Equinor

El Feel field, has a capacity of 70,000 barrels per day, is operated by Mellitah Oil and Gas which is a joint venture between the state oil firm NOC and Italy's Eni.

The leader of Zawi tribe, Al-Senussi al-Ahlaiq, told Reuters that the closure of El Feel was aimed at pressuring the authorities in Tripoli to release Bumatari who was kidnapped after arriving at Mitiga airport on Tuesday.

Al-Ahlaiq said that preparations are going on to close the water supply to Tripoli,"

Bumatari is a candidate to position of central bank governor, the tribe said in a written statement, adding that "makes him vulnerable to danger and kidnapping."

The U.N. mission in Libya said in a statement that the "shutdown must be immediately ended," and that it was disturbed by the reports of the protest.

The mission said five members of Libya's High State Council were also reportedly banned from travelling at the same airport.

"These acts create a climate of fear, promote tension between communities and tribes," said the U.N. mission.

The council is a legislative chamber that emerged from the first elected parliament in 2012 in Tripoli, in negotiations with the House of Representatives in eastern Benghazi that was elected in 2014.

The HSC head Khalid Mishri held Prime Minister Abdulhamid Dabaibathe accountable for the safety of council members, saying in a recorded statement "any recklessness from the prime minister against any member of the HSC members will mean that we have descended strongly and urgently towards a conflict."