Energy Prospectus

Opening Prices:
> WTI is up $1.17 to $88.46/bbl, and Brent is up $0.98 to $91.62/bbl.
> Natural gas is up 6.9c to $2.677/MMBtu.

AEGIS Notes
Oil

Oil surges to highest since November amid persistent market tightness
October ’23 WTI gained $1.23 this morning to trade around $88.52/Bbl

Yesterday, US diesel futures hit a new high since January, driven by reduced global supply as Russian exports are lost, low stockpiles, and reduced sour-crude output from OPEC+ countries
Diesel inventories may stay low as refiners do fall maintenance while demand rises for farming, trucking, and heating
> This is a BIG DEAL: The U.S. runs on diesel, including the fuel needed to harvest our crops. If you heat your home with heating oil, DO NOT WAIT UNTIL THE FIRST MAJOR COLD WAVE TO FILL YOUR TANK. Home heating oil rationing is becoming more likely.

In Libya, oil ports were undamaged by a severe storm, allowing output to continue at 1.2 MMBbl/d

Furthermore, the dollar eased from its recent six-month highs but is still trading higher

OPEC+ supply cuts lead to growing oil market tightness
OPEC’s 13 members produced 27.4 MMBbl/d in Q3, 1.8 MMBbl/d below estimated demand
OPEC data shows a projected supply deficit of 3.3 MMBbl/d in Q4 2023 < This is larger than Marshall Atkins' 2.5 million bpd supply deficit forecast made during his presentation in June. In June, Marshall forecast that WTI would need to go to $120 in Q4 to balance supply/demand.
If realized, it would be the largest inventory drawdown since at least 2007, squeezing supplies further
While OPEC says it wants to keep markets balanced, the cartel is shrinking oil inventories. OECD crude stockpiles are already 114 MMBbl below their 2015-2019 average < IMO Saudi Arabia is pissed about deal below that Team Biden has made with Iran.

Iran to get $6B oil funds back ahead of the prisoner swap (Bloomberg)
The US agreed to release $6 billion in oil proceeds to Iran as part of a secretly negotiated deal that will see the release of five American citizens
The deal is part of a broader diplomatic effort by the Biden administration to restore the 2015 nuclear deal with Iran
US officials have privately acknowledged that they have begun to relax sanctions on oil sales, allowing Iran to boost production < Biden has not been enforcing the sanctions for over a year!
Iran ramped up its production to over 3 MMBbl/d in August while exports to China have reached a decade high, ranging between 1.5 and 2 MMBbl/d, reported Kpler and TankerTracking < The Big Guy is earning every penny paid to the Biden Family.

Natural Gas

Natural gas prices are higher, extending gains from yesterday
Gas production is lower today due to a drop in South Central receipts stemming from maintenance on El Paso Natural Gas Pipeline
Freeport LNG feedgas nominations are slightly higher today at 0.70 Bcf/d after settling at 0.29 Bcf/d yesterday evening

Tellurian looks to offtake agreements to secure LNG project financing (Reuters)
The company’s Driftwood LNG project has been delayed and plagued by cancelations and is now looking to sell 1.47 Bcf/d of its 3.68 Bcf/d capacity as part of long-term offtake agreements
Tellurian CEO Charif Souki said, "Our teams are now re-offering, in addition to what we have offered in the past, a standard offtake agreement at a price that supports the financing,"
Souki also spoke of the rising costs of building LNG export plants and the risk that fees under older contracts may fall short of covering liquefaction costs

The US was the top LNG exporter in the first half of 2023 (EIA)
US LNG exports averaged 11.6 Bcf/d during the first half of 2023, which is more than any other country during that period < Total U.S. LNG export capacity is ~13 Bcf per day.
Most exports were shipped to Europe, as the continent deals with the lack of Russian pipeline gas, a stark change from 2021 when most exports went to Asia

The IEA's monthly "Oil Market Report" for September is expected to be released tomorrow (9/13). If it confirms the OPEC report that forecasts of oil demand exceeding supply by 3 million barrels per day, we may see WTI over $90 this week.
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Oil Climbs to 10-Month High as Global Fuel Markets Tighten
Grant Smith and Yongchang Chin
Tue, September 12, 2023 at 8:10 AM CDT

(Bloomberg) -- Oil advanced to a 10-month high in London as global fuel markets continued to tighten amid robust demand and supply curbs by top OPEC+ members.

Brent crude rose above $91 a barrel Tuesday after hitting a new high for the year during the previous session. Diesel — the workhorse fuel of the global economy — is rallying on Russian plans to limit exports this month, pushing past $1,000 a ton in Europe.

Data published by the Organization of Petroleum Exporting Countries showed the scale of the looming oil supply crunch, with a potential shortfall of more than 3 million barrels a day — the biggest in more than a decade.

“The oil industry feels a collective rally risk with a perception of — and actual — tightening,” said John Evans, an analyst at brokers PVM Oil Associates Ltd. in London.

Oil futures have rallied by roughly 25% since late June as fuel demand soars, while Saudi Arabia and Russia constrict supplies to bolster their petroleum revenues. The US dollar tumbled the most in almost two months on Monday, making commodities priced in the currency more attractive for most buyers.

Nonetheless, prominent forecasters such as JPMorgan Chase & Co. and RBC Capital Markets LLC say their core outlook doesn’t assume prices will reach $100 a barrel.

The US Energy Information Administration will publish its monthly market report later Tuesday, with the International Energy Agency’s due Wednesday.

“The upward momentum is exhausted for now,” said Vandana Hari, founder of Vanda Insights in Singapore. “Crude needs fresh cues to pick a direction. We may see a holding pattern of around $90 for Brent.”

Closing Prices:
> Prompt-Month WTI (Oct 23) was up $1.55 on the day, to settle at $88.84
> Prompt-Month Henry Hub (Oct 23) was up $0.135 on the day, to settle at $2.743

Tomorrow should be interesting. We get the EIA's weekly petroleum report and IEA's monthly "Oil Market Update". If the IEA report agrees with OPEC's forecast that demand for oil will exceed supply by 3 million barrels per day in Q4, we may see WTI move over $90/bbls a few weeks before my prediction that it would hit $90 at the end of September.

Draining of U.S and OECD Petroleum Inventories cannot go on forever. First there will be an attempt to "ration oil-based products by price" (i.e. - drive out some marginal demand) and then we will see physical rationing of transportation fuels.