Energy Prospectus

Opening Prices:
> WTI is up $1.01 to $90.64/bbl, and Brent is up $0.88 to $94.18/bbl.
> Natural gas is up 6.1c to $2.671/MMBtu.

AEGIS Notes
Oil

Oil trades higher as Russia bans fuel exports, escalating supply concerns
November ’23 WTI gains 90c this morning to trade around $90.53/Bbl < NOV23 is now the "Front Month" contract for WTI

Russia, the largest exporter of diesel, has halted gasoline and diesel exports to stabilize its domestic fuel market ahead of winter
Russia has exported more than 1 MMBbl/d of diesel-type fuel so far this year, and how deep the ban’s impact will be depends on how long it lasts (BBG)

China’s onshore crude inventories have been drawn down over the past three weeks to 1.1 billion Bbls, marking the lowest since mid-June, according to satellite intelligence firm Ursa (BBG))

The Fed signaled rates will stay higher for longer, boosting the dollar to a six-month high and weighing on dollar-denominated commodities
Judge orders Biden administration to expand Gulf oil lease sale (Bloomberg)

Federal judge orders the Department of the Interior to extend Gulf of Mexico oil lease sales slated for later this month
The ruling highlights the Bureau of Ocean Energy Management's inability to justify territory reductions and impose traffic limits on vessels meant to protect endangered whales
A Louisiana-based judge highlighted potential state losses of up to $2.2 million in royalties, leading to the decision

Oil and gas exploration activity climbing, says Woodmac
Conversations with leading E&P companies and recent licensing indicate a sustained appetite for wildcatting in the oil & gas sector, said Woodmac in its recent Sept 21 report
Exploration spending is recovering and is estimated to average US$22 billion annually from 2023-2027, closely aligning with spending levels seen before the 2006-2014 boom
Several factors, including the post-Ukraine war political shifts, attractive economics, new exploration regions, and strong company financials, are propelling oil & gas exploration investments
However, challenges like limited high-quality prospects, fewer specialized explorers, personnel shortages, and supply chain costs could curtail this momentum

Natural Gas

Natural gas prices are trading higher following warmer forecasts and reduced NGPL flows
Lower 48 weather forecasts shifted warmer by 7.7 °F over the two-week period, with most of the change driven by the Northeast and Midwest regions

The National Hurricane Center projects a tropical cyclone to make landfall along the mid-Atlantic coastline this weekend, which may reduce gas demand through lower temperatures and power outages

Cove Point LNG in Maryland has reduced feedgas flows to zero as the 0.9 Bcf/d facility begins its yearly month-long maintenance outage

NGPL declares force majeure at Texas compressor station
NGPL said yesterday afternoon that horsepower issues at Station 302 in Liberty County, Texas, have forced them to declare force majeure
The issue has reduced eastbound capacity on the pipeline from 1.2 Bcf/d to 1.0 Bcf/d, reducing supply moving into Louisiana

FERC recommends revising reliability standards (Reuters)
On Thursday, the US energy regulator recommended revising standards intended to ensure reliability during extreme weather
FERC will publish a report later this year outlining 11 recommendations for action to help prevent winter power supply issues
FERC Chairman Willie Phillips said, "Some recommendations from the 2021 Uri report are still not implemented... It shouldn’t take five winter storms in 11 years to show us the gravity of the situation we find ourselves in”

Note from RBC Capital Research Team:

Just when the energy market was contending with more Powell action, Vladimir
Putin reasserted himself as a main character in the market by announcing the
ban on Russian diesel and gasoline exports. The official justification offered by
the Kremlin is the stabilization of prices in the domestic market, and some
have suggested that the move reflects internal challenges in the country such
as weighing costs of subsidies on rising domestic fuel prices amid continued
military and social spending. Nevertheless, given the perilously low global product
inventory backdrop, we also see today’s action as a signal that Russia is not
entirely done with its energy weaponization strategy ahead of winter. With Europe
already halting the import of Russian products, the main customers that will be
impacted are Turkey, African nations, and Brazil. It is noteworthy that Russia has
announced carveouts for countries within the Eurasia Economic Union (EAEU) and
other strategically important intergovernmental partnerships.

https://www.newsweek.com/russia-ban-gas-diesel-exports-fuel-shortage-1828893

bless their hearts
Russia is experiencing fuel shortages and rising prices across the country

The EU and others will have to import diesel from China. That gets here on LR2 tankers. Tanker rates will move higher with additional demand and farther to go to reach markets.

The way to play this are product tankers. STNG and TRMD play in this sector. TRMD are smaller MR38's

I'm in Scorpio tankers STNG. they have a number of fairly new ships in this sector. Do your own dd.

May 2021 I recommend TRMD at 9 ish which ran to 37 ish. They pay a dividend. Stng is paying down debt

https://seekingalpha.com/article/4622871-scorpio-tankers-inc-stng-q2-2023-earnings-call-transcript

Members should be warned that the tanker space is among the most volatile in the stock market. You have to have a strong stomach to buy in.

agree, mkarpoff. One needs lots of Prilosec.

Another tanker stock that one could consider is INSW. Fleet of 27+tankers for oil and petroleum products with some of those LR tankers that Fraser alluded to. Stock price underwent a recent consolidation . Trades around 42. Analysts target 61. Solid balance sheet. Free cash flow positive. I've received 6 dollars /share in dividends over the last four quarters with regular and special dividends effectively at 14% yield.

Insw is a good one, they mainly haul crude. They also have product tankers.

I like Tnk and tk mid size crude tankers

Shipping has many segments and they trade on the fundamentals of that sector

We have been saying there is strong demand. Supply has to be shipped from somewhere. Biden shot his wad dumping the SPR

The risk is recession and lower demand. The same risk as investing in energy stocks.

The ebita yield is higher than 40 % - 50 % for TNK
They made so much money the almost paid off all the debt in the ships

What energy name gives you 2x on ebitda?

The names have recently pulled back as q3 rates fell into traditionally lower q3. The highest demand qtr are the 4th and 1st

Bulker stocks are now very cheap. I wait until I see rates improvement.

It’s a classic buy them when no one wants them and sell them when everyone wants them.

Some pay dividends others dont

So yes, you have to do homework and decide what you are comfortable with.

I don’t see the risk as higher than anything in sweet 16

Closing Prices:
> Prompt-Month WTI (Nov 23) was up $0.40 on the day, to settle at $90.03
> Prompt-Month Henry Hub (Oct 23) was up $0.027 on the day, to settle at $2.637

Note that my Q3 forecasts are based on $80 WTI and $2.50 HH natural gas. So, Q3 results will be better than my forecasts.

High quality companies like the Sweet 16 are still subject to "Market Risk" despite stronger than expected oil & gas prices. Why?
> Fear of the Fed = Fear of Recession
> Fear of Inflation
> Lack of Leadership. Team Biden is fixated on Climate Change as the #1 FEAR to draw attention away from inflation, open border and climbing gasoline prices. They need a FEAR to control the cattle.
> Strong U.S. dollar (which continues to amaze me) does keep pressure on commodity prices: https://www.marketwatch.com/investing/index/dxy

The global oil market is under-supplied and there is no Quick Fix.

Next week the NOV23 HH NYMEX contract becomes the front month. It closed today at $2.888. Keep an eye on the direction. So far, the next months futures contracts have been falling back to where the previous month closed. We have gotten 9 bullish storage reports in a row. There is no risk of gas-on-gas competition for storage, so the ngas price should firm up as winter approached.

"High quality companies like the Sweet 16 are still subject to "Market Risk" despite stronger than expected oil & gas prices"

No truer words spoken. Most of the Sweet 16 portfolio had eight consecutive days of red candle sticks with a greater than 10% price drop.

You'd think by looking at the chart appearance of each that there was massive program trading. Nah, that wouldn't happen.