Energy Prospectus

Opening Prices
> WTI is down $1.43 to $80.51/bbl, and Brent is down $1.43 to $83.91/bbl.
> Natural gas is up 4.2c to $2.767/MMBtu.

AEGIS Notes
Oil

Oil slips from a three-month high following weak Chinese trade data
September ’23 WTI lost $1.40 this morning to trade around $80.48/Bbl
Equities trade higher, while the dollar strengthened relative to its recent lows weighing on dollar-denominated commodities

China's July oil imports fell 18.8% from June yet rose 17% Y-o-Y, while overall imports fell by 12.4% and overall exports dropped 14.5%. However, analysts remain optimistic about China's fuel demand from August to October, expecting rises from peak construction, manufacturing, and summer travel. < My take is that China is drawing oil from their SPR (cheap Russian oil) in a effort to keep a lid on their transportation fuel prices.

Additionally, Saudi Arabia’s cabinet reaffirmed that the country would pursue precautionary measures of OPEC+

The market awaits US CPI for July on Thursday for clues on the path forward for monetary tightening

China's oil imports plunge to a six-month low amid slow economic recovery (Bloomberg)
China's July crude oil imports dropped to a six-month low amid the nation's slow economic recovery, hitting 10.33 MMBbl/d
A summer lull in industrial activity, a slump in housing and manufacturing sectors, and utilization of existing inventories may have contributed to the dip in imports too
Following the end of the Covid Zero policy, China’s oil demand may have peaked for the year with record onshore inventories of 1.02 GbBL, according to Vortexa
However, China's July oil product exports rose 46% from 2022, reaching 5.31 million tons or 1.26 MMBbl/d

Natural Gas

Natural gas prices are up slightly from yesterday after rising 15c to a monthly high
The Winter ‘23/’24 strip is at $3.55, and the Summer ’24 strip is trading at $3.28

Next week is forecast to be the hottest of the summer season for the Lower 48, boosting gas demand to 77.7 Bcf/d
Gas production is down more than 2.3 Bcf/d today due to maintenance on the Nexus pipeline

Wyoming gas project granted the ability to proceed (BBG)
The US Court of Appeals for the Tenth Circuit has sided against environmental groups in Wyoming regarding a plan to drill up to 3,500 gas wells in the Upper Green River Basin
The Bureau of Land Management had considered the potential effects on animals in the region, such as the Greater-Sage Grouse and the Pronghorn Antelope
The plan was originally approved in 2018, and the lawsuit was filed in 2019

Venture Global responds to complaints over contracts (Reuters)
Shell, Edison, and BP have filed for arbitration against Venture Global, saying they failed to provide contracted cargoes while selling cargoes into the spot market
The company claims customers “have chosen to misrepresent confidential long-term contracts”
Venture Global’s Calcasieu Pass export terminal began producing LNG in March 2022 but will not begin commercial shipments until 2024

WTI up 5 cents at the time of this post. Fear fading.
------------------------
22V Reasearch: China’s trend crude oil imports leave bull case intact

August 08, 2023

China’s imports of crude oil downshifted from ‘very hot’ to ‘near trend’ in July. State statistics reported today show 10.3 million b/d of inflows in July from 12.7 million b/d in June.

This slower rate of acquisition is not a surprise to us.

But this morning’s price action in the oil futures markets suggests it has spooked others. We would buy this 2% dip in crude futures.

Our bullish view on crude oil embeds the expectation that China’s crude oil imports will slow in response to higher crude oil prices. Falling prices for supertanker rates had already hinted that China’s stockpiling of crude oil has cooled, but persists, as Brent prices have advanced from $75 to $85 per barrel. The supertanker rate on the West Africa to China route, for example, averaged $3.21 per barrel in June, $2.83 in July, and $2.75 in August (so far). The average price for this rate in August is closer to $2 per barrel.

Chinese inflows at or near trend are not the threat to the bull case. The threat is if Chinese refiners elect to make substantial draws from the stockpile of 130 million barrels of surplus crude oil that has accumulated since November 2022 at prices far below current prices, rather than buy fresh production. This would mean crude oil imports at 9.5 million b/d or below.

So far, this election has not been made. This inaction suggests that the trigger price for that choice is probably above current prices. We assume it to be $90 Brent. In truth, it could be higher if oil product prices continue to advance strongly. It could be lower if global product demand sputters out.

Though we are not bothered by this tranche of backward-looking trade data for China, we do maintain that a sharp and sudden drop in Chinese crude oil imports and/or U.S. crude oil exports to below trend levels would be a sufficient driver to reverse our bullish call on crude oil if either were to occur (A barrel in hand is worth two in the balance, 19-Mar-2023, The conveyor belt buckles, 10-May-2023). Current signals from the midstream markets say this deeper downshift is neither happening yet nor appears to be imminent.

Closing Prices:
> Prompt-Month WTI (Sep 23) was up $0.98 on the day, to settle at $82.92
> Prompt-Month Henry Hub (Sep 23) was up $0.052 on the day, to settle at $2.777

AEGIS Last Look - Russia-Ukraine escalation propels oil back to four-month highs