Energy Prospectus

Opening Prices:
> WTI is down $2.24 to $83.15/bbl, and Brent is down $1.98 to $88.15/bbl.
> Natural gas is up 1.1c to $3.021/MMBtu.

AEGIS Notes
Oil

Oil is down $1.86 to $85.51, reversing gains from yesterday < The "Roller Coaster" trading will continue to reach to news coming out of Israel. EIA weekly reports on oil and refined product inventories that are confusing also contributes to the "noise" lever.
Yesterday, the EIA reported a storage build of 1.4 MMBbl, which was higher than the market expected and put US crude inventories 5% below the five-year average

The US dollar index is trading around 106.75, the highest level since earlier this month, ahead of the Q3 GDP advanced release today < As the dollar goes up it puts downward pressure on oil prices.

Global oil inventories hit multi-year low (BBG) < I expect OECD Petroleum Inventories to continue to fall.
Commercial and strategic reserves have fallen to the lowest level in years as OPEC reduces supply
According to Kpler, global inventories have fallen to 3.31 billion barrels, which is the lowest level since they began tracking inventories in 2017
In the US, inventories at the Cushing storage facility fell to a nine-year low earlier this month
Rystad Energy said the main drivers behind the decline in crude stocks are the impact of the Saudi cuts and higher interest rates, reducing the incentive to hold oil in storage < OPEC meeting next week. High probability that Saudi Arabia will stick with their export limits. Oil demand within Russia goes up in the winter, so Russian exports likely to decline as winter weather spreads.

Oil and gas service demand set to grow beyond 2024, says Halliburton CEO (S&P)
> Oil and gas service demand is forecast to rise in 2024 and beyond due to the increasing need for energy security and sustained reliance on conventional energy supplies, said Halliburton CEO Jeff Miller in the 3Q earning call
> Miller emphasized the necessity for long-term investments to maintain and incrementally boost oil and gas supply
> Based on OPEC’s 10 MMBbl/d demand growth forecast by late 2020s and further demand growth through 2045, Miller expects to see continued demand growth for oilfield services in 2024 and beyond < IEA's oil demand forecast is much lower for the remainder of this decade (because they are based in Paris and that is what the bosses want to hear.) OPEC's oil demand forecast seems more likely to me.
> He added that despite a 20% decrease in the US rig count in 2023, North America saw demand for services continue to increase in intensity from unconventional reservoirs

Natural Gas

Natural gas prices trade higher, extending gains from yesterday
The Winter ‘23/’24 strip is trading at $3.38, and the Summer ’24 strip is at $3.267 < My forecast models are based on HH ngas prices averaging $3.00 in Q4 and $3.25 in Q1. After Q1 ngas price will be determined by the end of winter storage levels and timing of when two large LNG export facilities come online. My 2024 forecasts are based on $3.25 in Q1, $2.75 in Q2, $3.25 in Q3 and $3.75 in Q4.
A late October to early November cold front is forecasted for the Lower 48, with Euro Ens verifying the cold trend in the 1-15 day period, with more demand expected in the next two weeks

Court sides against Virginia landowners, Mountain Valley Pipeline continues with delays (S&P)
Federal appeals court rejects Virginia landowners' plea for an emergency halt on Mountain Valley Pipeline construction
Landowners argue Congress overstepped by granting FERC the right to take private property
The 2 Bcf/d MVP project's finish, originally approved by Congress, is now delayed to 1Q24 amid ongoing legal issues

Closing Prices:
> Prompt-Month WTI (Dec 23) was down $-2.18 on the day, to settle at $83.21
> Prompt-Month Henry Hub (Nov 23) was up $0.204 on the day, to settle at $3.214 < Note that DEC23 becomes the front month at the end of this week.

OPEC Meeting next week should stabilize oil prices.

Trading Economics:
"WTI crude oil futures fell to almost $83 on Thursday, on a stronger dollar and signs of weak demand. The latest data showed that seasonal demand in the US remained weaker than expected. Figures from the EIA showed that product supplied for both motor gasoline and distillate fuels significantly fell from the previous period on the week ending October 20th, while refinery crude runs and utilization rates also dropped. Accordingly, crude oil inventories unexpectedly rose by 1.371 million barrels, exceeding forecasts for a 0.239 million barrel increase. Still, arguments for lower demand were limited as Beijing widened its budget deficit to issue CNY 1 trillion in supplementary bonds for manufacturing investments, adding to buying activity for fuel. Markets were also mindful of supply concerns amid fears that the Israel-Hamas war could escalate and disrupt supplies in the oil-rich region."

"US natural gas futures jumped by 8% to above the $3.2/MMBtu mark on Thursday, rebounding from the two-week low of $2.9/MMBtu touched on October 20th amid a smaller-than-expected build and forecasts for colder than expected weather and higher heating demand over the next two weeks. New data from the EIA showed that US utilities added 74 billion cubic feet of gas into storage on the week until October 20th, above the five-year average, but missing market expectations of an 80 billion cubic feet build. Adding to the rebound, meteorologists noted that weather in the lower 48 US states is likely to be significantly colder than expected from the end of October to the start of November, increasing demand for gas-intensive heating. Capping the rebound, however, data from the LSEG showed that average US production averaged 103.9 billion cubic feet so far in October, on track to surpass the record high of 103.1 billion cubic feet from July."

"More big ticket M&A hit the U.S. E&P sector on Monday with the $53bn acquisition of HES
by CVX in an all-stock 5% premium takeout. We think more M&A is likely on the horizon with
reports of CHK/SWN and DVN/MRO as other potential tie-ups. The two most likely takeout
candidates in the Permian Basin in our view are MTDR and PR. We also think that more gas
deals may occur in 2024 and beyond, and CRK tops our list of takeover candidates. We also
don't think investors should be discouraged by the small 5% premium on the HES deal, as we
think other transactions will see more traditional 10-15% premiums. The war between Israel
and Hamas has now entered its third week, and we don't think the price of oil is adequately
reflecting the current instability in the Middle East or the potential for escalation. We think
a ground invasion of Gaza by the IDF is the most likely outcome and that this may trigger
increased fighting along Israel's border with Lebanon and Syria. We think that there is clear
potential for either new sanctions against Iran or the stricter enforcement of existing sanctions
which can take oil barrels off the market. We don't think the current situation resolves itself for
at least a few months, and we view the risk/reward of oil prices as being to the upside in 4Q23."
Leo Mariani, CFA, Managing Director