Energy Prospectus

Opening Prices:
> WTI is up $1.35 to $88.01/bbl, and Brent is up $1.46 to $91.36/bbl.
> Natural gas is up 4.6c to $3.125/MMBtu.

Last night API reported that U.S. crude inventories declined by 4,383,000 barrels;
Oil stored at Cushing, OK declined by 1,005,000 barrels.
Gasoline inventories declined by 1,578,000 barrels;
Distillates (primarily diesel and home heating oil) declined by 612,000 barrels

AEGIS Notes
Oil

Oil trades higher as rising tensions in the Middle East threaten supply
November ’23 WTI gained $1.35 this morning to trade around $88.01/Bbl after rallying by around $3/Bbl to $89.81/Bbl during the overnight session
The price rally followed an announcement by Iran’s foreign minister advocating for a complete and immediate oil embargo on Israel by Islamic nations (Bloomberg)
The call came after an explosion at a Gaza hospital killed a reported 500 people, with both sides pointing fingers at each other

Additionally, President Biden, upon arriving in Israel today, claimed that, from what he has seen, the explosion at the hospital was not carried out by Israel but by “the other team” < Biden could not remember the name of "the other team".

On the demand side, China's economy saw a faster-than-expected growth in the third quarter, indicating recent policy measures are aiding its tentative recovery
China’s oil refiners see record daily output as demand begins to rebound (Bloomberg)
China's daily refining in September reached a record high of 15.5 MMBbl/d, a 12% increase from 2022
Apparent oil demand in September soared to 15.24 MMBbl /d, a 17% increase Y-o-Y, marking the highest monthly level since March 2010
As the annual peak demand season rolls in, diesel demand is expected to remain strong, jet fuel usage continues to recover, and gasoline demand moderates

Natural Gas

Natural gas prices recover, rising to $3.15/MMBtu
The Winter ‘23/’24 strip is up 6c to $3.51, and the Summer ’24 strip is higher by 3c to $3.36

Natural gas storage rates rising ahead of higher demand (S&P)
Increasing intermittent demand in the US Gulf Coast is leading pipeline operators and power generators to bid up prices in the South Central region’s storage facilities
A spokesperson from storage operator Enstor said, “LNG demand is not really baseload, it fluctuates throughout the day,” with the same being true of gas-fired power plants. This leads to many gas buyers being required to take delivery of gas they do not need and sell into the spot market at a loss or pay a premium for salt dome storage
With storage rates near levels last seen in the late 2000s, many operators are expanding storage facilities in the Gulf Coast and other US regions

Midcontinent gas prices fall, basis widens (S&P)
Chicago Citygate spot basis prices recently fell as low as -$1.245/MMBtu this weekend, the biggest discount to Henry Hub since last winter, before recovering to -$0.845/MMBtu
Some of the decline may have been driven by recent notices issued by pipeline operators in the region
On Thursday evening, NGPL issued a notice telling shippers that due to current operational conditions, they had waved the obligation for storage operators to meet 95% of contract volumetric obligations to receive their full withdrawal quantity this winter

Weather has also contributed, with the Midcontinent region’s forecast showing temperatures about six degrees above normal over the next two weeks, reducing expected gas demand

Closing Prices:
> Prompt-Month WTI (Nov 23) was up $1.66 on the day, to settle at $88.32
> Prompt-Month Henry Hub (Nov 23) was down $-0.023 on the day, to settle at $3.056

Trading Economics:
"WTI crude futures rose more than 1.5% to above $88 per barrel on Wednesday, the highest in two weeks following Iran's call for a Muslim countries' embargo against Israel. Tensions escalated in the Middle East after a blast at a Gaza City hospital killed about 500 Palestinians on Tuesday, with Israel denying that it carried out the attack. Meanwhile, government data showed US crude inventories fell more than expected last week, in line with industry data on Tuesday. The latest EIA report pointed to a 4.491 million barrels decline in US crude inventories last week, far exceeding forecasts for a 300,000-barrel decline. Elsewhere, the Venezuelan administration and opposition leaders on Tuesday agreed to electoral guarantees for the 2024 presidential elections, paving the way for possible US sanctions relief that could increase global oil supplies."

"US natural gas futures fell to below an over 1-week low of $3.1/MMBtu, extending an over 2% loss in the previous week, due to increased production, reduced exports to Mexico, and forecasts of mild late October weather lowering heating and cooling demands. Natural gas production rose to 103.4 bcfd so far in October, surpassing a record high of 103.1 bcfd in July. At the same time, exports to Mexico have been falling from September’s record, although there are expectations of an increase when New Fortress Energy's plant starts exporting liquefied natural gas. Meanwhile, US LNG facilities' gas flow reached 13.4 bcfd in October, with the return of Cove Point."

NYMEX
WTI DEC23 closed at $87.14
HH DEC23 closed at $3.477

MY TAKE:
> Sanctions against Iran will push WTI over $90 and maybe over $100
> Tomorrow's natural gas storage report should show big decline in surplus to where storage was a year ago. Weather reports are the #1 driver now.