Energy Prospectus

Opening Prices:
> WTI is up $0.32 to $91.11/bbl, and Brent is up $0.56 to $92.76/bbl.
> Natural gas is down -2.3c to $2.906/MMBtu.

AEGIS Notes
Oil

Oil opened higher as the market expects a significant supply deficit this quarter
November ’23 WTI gains 43c this morning to trade around $91.22/Bbl

Over the weekend, the US passed a bill averting a government shutdown, securing funds until November 17 < If I was the Chairman of a company that waited until the last minute to get jobs this important completed, I would fire the entire management team.

Both crude benchmarks rallied nearly 28% in the third quarter as Saudi Arabia and Russia extended their supply output cuts through December
OPEC projects a 3.3 MMBbl/d deficit in the fourth quarter of 2023 for the global oil markets

On the demand side, China's factory activity expanded for the first time in six months in September, hinting at economic stabilization in the world's second-largest economy
September's PMI rose to 50.2 from 49.7, indicating growth, as reported by the National Bureau of Statistics
This week, China's Golden Week holiday is expected to boost travel and aid economic recovery, further improving demand outlook
Additionally, the US dollar is trading near its recent ten-month highs, making dollar-denominated commodities expensive

Turkey's oil pipe restart optimism meets Iraq's skepticism (Bloomberg)
The pipeline transporting nearly 0.5 MMBbl/d of crude has been offline since March due to payment disputes between Turkey and Iraq
Turkish Energy Minister Alparslan Bayraktar said, "The pipeline is ready to operate, and within this week, we will start operating the Iraqi-Turkey pipeline, which, after resuming operations, will be able to supply half a million barrels” of oil a day to global markets
However, an Iraqi official countered that oil flows won't continue until commercial and financial disagreements are settled

Natural Gas

Natural gas prices are down, reversing gains from last week

Temperatures are expected to fall by about 7 °F next week, from a weekly average of 70.0 °F this week to 63.5 °F over the next two weeks, but these temperatures are unlikely to increase gas demand by much

Gas production is down 1.4 Bcf/d as Northeast pipeline maintenance reduces capacity in the region

Operators say power grids must adapt to electrification (Reuters)
Power grid operators told US lawmakers on Thursday that rapid electrification poses a risk to power grids across the country
"We are seeing the potential for the rate of electricity demand to significantly increase in the future due to the electrification of transportation and heating sectors," said Frederick Bresler, vice president of market services for PJM
Operators warned that while technology like battery storage is viable, grids will still need to rely on coal and natural gas
ISO New England projects average power demand to double and winter peak demand to triple by 2050
Higher electricity demand could lead to power sector natural gas demand remaining higher for longer < Wind & Solar cannot keep up with this level of electricity demand growth.

EIA reduces hydropower forecast (EIA)
The EIA has lowered their Bal ’23 hydropower forecast for the Pacific Northwest and California, where hydro is responsible for a significant share of power generation
Above-average rainfall last winter and spring led to a plentiful supply of water in Western US aquifers; however, high temperatures in late spring melted snow rapidly, resulting in a significant loss of water
The EIA forecasts a 19% drop in hydro output in the Pacific Northwest, and while the agency has reduced the forecast for California’s hydro generation, the state is still expected to generate 99% more power from hydro this year compared to 2022
California imports a large amount of power from the Pacific Northwest, which could see a reduction in total generation, leading to higher-than-expected gas demand in California, somewhat offsetting the state's higher hydro output

>Over the weekend, the US passed a bill averting a government shutdown, securing funds until November 17 < If I was the Chairman of a company that waited until the last minute to get jobs this important completed, I would fire the entire management team.


These idiots in Washington are acting like they did a great job in finding a 45 day stopgap agreement to stop a shutdown… until November 17th.

I say fire them all and replace with Ai

Let's actually shut down the Federal Government for a month (zero pay) and see what happens. Honestly, I think we should be giving a lot more power back to state governments.

Government’s formula:

Create a “crisis” -> “Save” us from the crisis -> repeat

That is how they keep their integrity from the average Joe’s perspective.

“What I am asking, Republicans and Democrats alike, put your partisanship away," said McCarthy.

Code for ,focus on your lobbyists who pay your bills and fund your campaign.

"Bipartisan means a larger deception than usual is being carried out"

-George Carlin

Here is the grand deception in the CR..

“Asked if he could trust the Republican House speaker, Kevin McCarthy, to honour deals, Biden said: “We just made one about Ukraine, so we’ll find out”, referring to Republican promises of passing a separate bill on the issue.”

https://12ft.io/proxy?q=https%3A%2F%2Fwww.theguardian.com%2Fworld%2F2023%2Foct%2F02%2Fjoe-biden-republicans-ukraine-aid-plan-volodymyr-zelenskiy

Getting back to the oil & gas prices...

Trading Economics:
"WTI crude futures pared early gains and fell below $89 per barrel, extending the sharp decline since hitting a one-year high of $93.7 on September 27th as worries that the Fed will leave rates higher for longer lifted the dollar and hampered the outlook on energy demand. Concerns about high borrowing costs were magnified by optimistic PMI results released by the ISM and the US government’s ability to delay shutdown risks, sending the yield on the 10-year Treasury to over 16-year highs. Still, tight oil supplies pinned WTI futures 33% higher since this year’s low in March, as OPEC is expected to maintain previously announced output cuts. Earlier in September, Saudi Arabia and Russia announced they would extend the combined 1.3 million barrels-a-day output cuts until the end of the year. Also supporting energy prices, data released over the weekend showed that Chinese manufacturing activity turned expansionary in September, limiting demand concerns from the world's top importer."

MY TAKE:
> Rising U.S. dollar is only real reason for oil to be down today. How can a bankrupt country have a strong dollar?
> "FEAR of the FED" fires up "FEAR of Recession", but no tangible signs of oil demand falling.
> OPEC meeting on Wednesday should confirm that Saudi Arabia will do whatever it takes to keep oil prices high.
> Today's stock prices for the Sweet 16 don't even make sense if WTI was $75/bbl.

Natural Gas
Trading Economics:
"US natural gas futures rose to above $2.9/MMBtu due to strong demand and slightly reduced production (then pulled back with the decline in oil price). Gas production in September was 102.0 billion cubic feet per day, down from August's record high of 102.3 bcfd. Also, warmer-than-normal weather forecasts until October 6 are supporting gas demand despite the shoulder period with typically lower power demand. Furthermore, gas flows to US LNG export facilities have been rising and pipeline exports to Mexico reached 7.2 bcfd in September. However, feedgas remained steady at around 12.1 bcfd for a second consecutive day, following a 4-week low of 11.5 bcfd due to maintenance at facilities like Cove Point and production reductions at other plants. Meanwhile, the EIA reported a slightly larger-than-expected weekly increase in gas inventory, with US utilities adding 90 bcf during the week ending September 22, exceeding market expectations of 88 bcf."

MY TAKE for Natural Gas:
> We should see much smaller storage builds than we had last year for the next three weeks.
> We still have plenty of storage capacity and "gas-on-gas" competition for storage is no longer a risk.
> Storage will be over the 5-year average when winter draws begin in mid-November, but storage will be well within the 5-year range.
> Ramping up LNG exports and normal winter weather are key to U.S. natural gas prices firming up over $3.00 in December and staying there in 1H 2024. U.S. natural gas prices should push over $4.00 by Q4 2024 with two more large LNG export facilities coming online.

Closing Prices:
> Prompt-Month WTI (Nov 23) was down $-1.97 on the day, to settle at $88.82
> Prompt-Month Henry Hub (Nov 23) was down $-0.089 on the day, to settle at $2.840

The only fact that justifies the dip in oil prices is the strength of the U.S. dollar. Demand for oil exceeds supply, just like it did last week.