Energy Prospectus

Opening Prices:
> WTI is up $0.67 to $81.25/bbl, and Brent is up $0.54 to $85.53/bbl.
> Natural gas is down -2.3c to $2.615/MMBtu.

AEGIS Notes
Oil

Oil heads for the biggest monthly gain since January 2022 as supplies begin to tighten
September ’23 WTI gains 62c this morning to trade around $81.20/Bbl
Equities trade higher while the dollar sees a modest uptick

Saudi Arabia is reducing production by 1 MMBbl/d in July-August, in addition to an earlier 0.5 MMBbl/d cut under the OPEC+ agreement that began May
Russia has pledged a 0.5 MMBbl/d drop in August oil exports, and ship tracking is indicating that Russian crude exports are already falling

"Oil prices are up 18% since mid-June as record-high demand and Saudi supply cuts have brought back deficits, and as the market has abandoned its growth pessimism," said Goldman Sachs analysts in a July 30 note to clients
Also, there's speculation that the Fed is near or at the end of its tightening cycle

Oil market (inventories) dips into deficit as demand hits record, says Goldman (Bloomberg)
> Global oil demand hit a record high in July, resulting in a significant market deficit, driven in part by Saudi Arabia's supply cuts, according to Goldman Sachs
> In July, global oil demand hit a record 102.8 MMBbl/d, with 2023 demand projections revised up by 0.55 MMBbl/d to 1.5 MMBbl/d. Strong demand is expected to push the market into a deficit of 1.8 MMBbl/d in 2H 2023 < Raymond James forecast is that demand for oil will exceed supply by 2.8 million bpd in Q4. The deficit is already close to or over 2.0 million bpd TODAY.
> The bank added that physical markets show signs of strengthening, backed by increased refining margins and physical crude's premium over crude futures
> Although oil market optimism is prevalent, Goldman warns of potential risks, including increased OPEC spare capacity, growth in international offshore projects, and declining US oil production costs < IMO none of this will be able to balance the physical market over the next six months. It will take a SIGNIFICANT increase in the active drilling rig and completion crew counts to increase US oil production. OPEC+ is now in control of oil prices and they intend to prove it to the world.

Hedge funds bet big across energy complex amid price rally (Bloomberg)
> Hedge funds have increased their bullish positions across the energy sector, driven by crude prices crossing $80/Bbl and a surge in gasoline prices
> Net long positions on both the crude benchmarks hit a three-month high while long-only bets on US gasoline futures soared to a 21-month high, according to CFTC and ICE data
> Speculators also increased their bullish bets on NYMEX diesel and ICE gasoil to six-month highs, despite soft domestic demand, largely offset by strong diesel exports

Natural Gas < Listen carefully to my comments about natural gas in my July 30th podcast.

Natural gas prices are trading lower to start the week, with the September contract around $2.62
The Winter ‘23/’24 strip is at $3.52, and the Summer ’24 strip is trading at $3.26
Weather forecasts shifted significantly over the weekend, with the net effect leading the Lower 48 two-week forecast to warm by 3.7 °F

Permian Highway Pipeline shut down (BBG)
On Friday, Kinder Morgan declared a force majeure for the Permian Highway Pipeline, which ships gas east to the Katy hub and Houston Ship Channel area from the Permian Basin
Flows on the pipeline have been reduced to zero due to an “operational incident” on the evening of July 27, which led spot Waha prices to trade negative
Kinder Morgan said they expect capacity to return to normal by August 1

TC Energy begins re-pressurizing pipeline section in Virginia (Reuters)
Last week, an explosion on a section of the Columbia Gas Pipeline resulted in the company declaring a force majeure and reducing flows to the Cove Point pipeline, which supplies the Cove Point LNG facility
TC Energy has started to re-pressurize an unaffected section of the pipeline, which will now operate with added risk mitigation measures and reduced operating pressure
The company does not currently have a repair timeline in place but said the impacted section of the pipe has been removed and shipped to a lab for analysis

Note this morning from Keith Kohl.

Gas prices are soaring higher this summer, thanks to scorching temperatures across the United States. According to AAA, the average price for regular unleaded gasoline hit an eight-month high last week at $3.71 per gallon.

So what’s the cause and, more importantly, will prices continue climbing?

There are a few points to note here. Not only can refineries not run at maximum efficiency when temperatures hit 100 degrees, but demand has been resilient throughout 2023. Furthermore, it’s very likely we see prices rise throughout August if the heat waves persist.

Of course, this is all not to mention the fact that crude oil is poised to jump higher as we head down the back stretch of the year, especially as new factors such as OPEC+ production cuts and lower U.S. output impact supply.

The European Energy Transition Most People Didn’t See Coming

When we talk about the EU's energy transition, it’s typically in reference to member countries rapidly growing clean energy sources like wind and solar, or even new policies that restrict or hamper development in sources like coal or nuclear.

However, ever since Russian tanks rolled into Ukraine, the true energy transition has been over natural gas.

Specifically, it has been EU members embracing LNG as a means of offsetting lost Russian natural gas supply. In fact, next winter will be the first one for Europe without Russian natural gas in decades.

From Marketwatch

Oil futures rose Monday, ending July on a positive note as
the U.S. crude benchmark posted its largest monthly rise since January 2022.
Brent crude, the global benchmark, saw its largest monthly jump since May of
last year.

Market drivers

Both WTI and Brent have seen a string of five straight weekly gains, with WTI
turning positive on the year, while Brent continues to nurse a year-to-date
loss of around 1%.

Crude has found its footing on expectations the market will move into deficit
in the second half, aided by supply cuts by the Organization of the Petroleum
Exporting Countries and its allies, including Russia. Analysts said investors
will be eager to see if Saudi Arabia extends a voluntary, additional
production cut of 1 million barrels a day that began in July through
September. < Oil demand exceeds supply by ~2 million bpd TODAY.

Meanwhile, resilient economic data helped boost crude and gasoline futures
last week, with the latter hitting 2023 highs.

"While the world continues to look to the U.S. to counter some of the output
cuts by Russia and Saudi Arabia, rig activity suggests U.S. producers are in
no hurry to fill the gap, clearing a path for steady undersupply over the near
term," said Robbie Fraser, manager of global research and analytics at
Schneider Electric, in a Monday note.

"Additionally, while recession fears have hardly disappeared, most economist
polls and measures of consumer confidence point to an improving situation,
which generally triggers support for discretionary demand in categories like
gasoline and jet fuel," he wrote.

-William Watts

Closing Prices:
> Prompt-Month WTI (Sep 23) was up $1.22 on the day, to settle at $81.80
> Prompt-Month Henry Hub (Sep 23) was down $-0.004 on the day, to settle at $2.634

Oil posts $11/Bbl or 16% monthly gain, the largest since January 2022

Dan, you have a lot on your plate this week! Good luck!

This is why you pay the Big Bucks for your EPG membership.

I did talk to Matador today and I think they will FINALLY host a Houston luncheon for us this year. Matador really looks good to me.