Energy Prospectus

At the beginning of August I predicted that WTI would move over $85 by the end of the month and over $90 by the end of September. I was off my one day. At the time of this post WTI was over $85. My "$90 by the end of September prediction" might be too low since US and OECD inventories are on steep decline.

Opening Prices:
> WTI is up $1.19 to $84.82/bbl, and Brent is up $1.10 to $87.93/bbl.
> Natural gas is up 5.1c to $2.819/MMBtu.

AEGIS Notes
Oil

WTI rallied to over $85/Bbl Friday morning to what could be the highest close since November 16, 2022

The People’s Bank of China cut banks’ FX reserves to boost yuan
The cuts are the latest attempt to shore up confidence in the world’s second-largest economy (Bloomberg)

Saudi observed crude shipments plunged in August to multi-year lows
Bloomberg tanker-tracking data showed Saudi exports were about 5.6 MMBbl/d in August; compared with a revised 6.3 MMBbl/d in July

Nearby oil time spreads are the strongest in 10 months
WTI prompt-month vs. next month future traded at +$0.78/Bbl Friday morning
The positive spread for Month 1 to Month 2 is a far cry from -$0.20 contango in late June
AEGIS notes the rising time spread is a signal that the physical crude market is tightening, mostly from large OPEC+ supply cuts

Natural Gas

Natural gas prices are set to finish the week higher, reversing last week's losses
Weather forecasts are mixed today, with the Midwest cooling and the Southeast warming
Gas production has turned lower, now near seasonal lows at 100.6 Bcf/d

Aliso Canyon storage facility to increase capacity (Reuters)
California energy regulators on Thursday authorized a capacity increase for the Aliso Canyon storage facility with the intention of reducing the chance of winter price spikes
The facility's capacity has been increased from 41.16 Bcf to 68.6 Bcf
The increase may not have much effect on the Winter '23/’24 season, as much of the injection season has already passed

PJM issues hot weather alert (Reuters)
The largest power grid in the US has issued an alert that high temperatures could lead to a surge in power demand
This should lead to an increase in power sector gas demand in the Northeast region, which is expected to rise to 11.2 Bcf/d from 8.5 Bcf/d today

Closing Prices:
> Prompt-Month WTI (Oct 23) was up $1.92 on the day, to settle at $85.55
> Prompt-Month Henry Hub (Oct 23) was down $-0.003 on the day, to settle at $2.765

Oil's close over $85 on Friday is encouraging, but it may pull back on Tuesday since Labor Day is considered the end of the summer driving season. If support at $83 holds then we should see $90 by the end of September.
Refined product inventories are low, with Diesel dangerously close to force rationing. Refineries need to keep operating at mid-90% range of capacity to keep transportation fuel demand covered.

If U.S. crude oil inventories fall below 400 million barrels, my guess is that WTI pushes up to $100.

IBD Paper this week shows more interest in the Oil and Gas sector.

21 this week's rank
44 three weeks ago
129 six weeks ago

When CPE was between $50-$60 a share, the sector was in the top five.