Energy Prospectus

Read my previous post carefully. Saudi Arabia is now in complete control of the oil price.
Initial move this morning is driven by a Short Covering Rally.
Geopolitical Risk is now back in the equation in a BIG WAY.

Opening Prices:
> WTI is up $3.33 to $86.12/bbl, and Brent is up $3.26 to $87.84/bbl.
> Natural gas is up 2.1c to $3.359/MMBtu.

AEGIS Notes
Oil

Oil prices surge in the wake of a surprise Hamas attack on Israel

On Saturday, Palestinian group Hamas initiated the largest military assault on Israel in decades, prompting Israel to respond with airstrikes on Gaza
The conflict poses a risk to U.S. attempts to mediate a peace agreement between Saudi Arabia and Israel, potentially jeopardizing a deal involving normalization of relations and a defense pact
While currently, there are no immediate impacts on supply and demand, but the situation could have broader geopolitical implications

Last week, oil prices saw their biggest weekly drop in March, with prompt month Brent and WTI losing nearly $10.73/Bbl and $8/Bbl, respectively
The decline was driven by factors like a weakened macroeconomic outlook, concerns over higher interest rates for longer, affecting future economic growth, and a strong U.S. dollar < IMO the stronger dollar is the only tangible reason for the oil price selloff. The other stuff is "Fear Based".

However, AEGIS believes that such price pullbacks could trigger more proactive discussions within OPEC

Hamas-Israel tensions cast a shadow over Saudi-Israeli relations (WSJ, Bloomberg)
Last Friday, Saudi Arabia informed the White House of plans to increase oil production in early 2024 if crude prices stay elevated, aiming to strengthen the three-way agreement with the US and Israel
However, Saudi negotiators emphasized that production decisions will be guided by market conditions and that these talks do not constitute a long-term commitment to reducing oil prices

Nevertheless, the growing conflict in Gaza could decrease the probability of a near-future normalization in Saudi-Israeli relations
Furthermore, the WSJ reported that Iranian security officials helped plan the Hamas assault
There is a risk that the White House will take a tougher stance on sanctions enforcement, reversing its previously looser approach, which has enabled Iran to raise its oil production by more than 0.5 MMBbl/d this year to reach 3.2 MMBbl/d as of Aug. '23
IMO Team Biden has no choice but to slap sanctions against Iran. Anyone with an IQ over 80 knows that Hamas is controlled by Iran.

Natural Gas

Natural gas prices are higher, extending gains from last week
The Winter ‘23/’24 strip is trading at $3.62, and the Summer ’24 strip is at $3.40 < These prices compare to the U.S. ngas price used in my forecasts of $2.75 for Q4 and $3.25 for 2024. I will be updating my oil & gas price deck a few days before I write my October newsletter.

Lower 48 temperatures are expected to decline from an average of 63.1 °F this week to 60.7 °F for the next two weeks, leading to a slight increase in gas demand

LNG feedgas nominations continue to move higher, with LNG demand at 13.68 Bcf/d as of today

Cameron Interstate Pipeline proposes capacity increase to serve LNG demand (S&P)
The pipeline is proposing to increase capacity by 1.08 Bcf/d, primarily to serve the Cameron LNG export facility
The export facility currently has three liquefaction trains in operation and has approval to add a fourth train, which is expected to be commercially sanctioned in 2024
The company said, “The strong interest in the project from potential customers demonstrated through their response to the open season demonstrates an existing and pressing need for the project,”

Delfin receives FERC extension for offshore LNG project (S&P)
The Delfin LNG export terminal to be deployed offshore Louisiana has received a permit extension from US regulators, giving developers more time to construct the connected onshore facilities
The extension gives Delfin until September 2027 to complete construction on the facilities
The Delfin LNG facility will consist of up to four floating liquefaction facilities with a capacity of up to 1.77 Bcf/d

Closing Prices:
> Prompt-Month WTI (Nov 23) was up $3.59 on the day, to settle at $86.38
> Prompt-Month Henry Hub (Nov 23) was up $0.038 on the day, to settle at $3.376

Trading Economics
Oil
"WTI crude futures surged more than 4% to above $86 per barrel on Monday, recouping some losses from last week after a surprise attack by Hamas on Israel over the weekend started a conflict in the Middle East. While the violence is contained in the region for now, analysts feared that geopolitical tensions could escalate globally amid reports that Iran was involved in planning the attacks. Meanwhile, the US oil benchmark plunged nearly 9% last week as signs of weakening demand outweighed tightening supply. EIA data showed that US gasoline stocks rose the most since the first week of 2022, and the four-week average for US gasoline demand reached its lowest point for this time of the year since 1998. High interest rates and slowing global growth also clouded the demand outlook. On the supply side, Russia allowed diesel fuel exports via ports again after a recent ban, but gasoline exports remained restricted."

Natural Gas
"US natural gas futures rose toward $3.4/MMBtu, closing in on their highest level since January driven by reduced domestic gas production and increased exports. October's gas output declined to 102.1 bcfd from 102.9 bcfd in September and a record 103.1 bcfd in August. Additionally, natural gas exports to Mexico are rising, with expectations of further growth when New Fortress Energy's plant starts exporting liquefied natural gas (LNG). The total volume of natural gas supplied to the seven major US LNG export plants edged up to 12.8 bcfd in October, but it still falls short of the record levels of 14 bcfd observed in April. Cove Point, which halted operations around September 20, is expected to resume production soon. Gas prices are also rising due to an increase in crude oil prices, after a recent attack in Israel that has the potential to escalate tensions in the already volatile Middle East region."