AEGIS Hedging : January 8, 2024

Oil is down $3 this morning to $70.80, reversing last week’s gains
- The NYMEX gasoline crack spread, which represents refinery margins, is now the weakest since early November
- Rebalancing of several large commodity indices will occur this week with the Bloomberg Commodity Index and S&P GSCI Index expected to sell about 27k contracts of WTI
Saudi oil price cuts highlight softer spot market (BBG)
- Saudi Arabia cut the official selling price to Asia for their flagship Arab Light crude to a $1.50/Bbl premium to the regional benchmark for February, which is the lowest level since November 2021
- The price cut follows a trend of weakening spot differentials for Middle Eastern crudes amid weak Chinese demand and high global oil supply
- Vortexa’s lead Asia analyst said, “Amidst the weakening of the global economic outlook and the fading of seasonal demand strength, it has not come as much of a surprise that Saudi is cutting its OSPs so deeply”
Speculators start 2024 with a large increase in bearish bets on oil (BBG)
- Managed money participants made one of the biggest positioning shifts in oil in several years, as they added 61k short positions in Brent and WTI, according to CFTC data
- This increase in bearish positioning comes as oil prices have started the year on a weak note and following the first annual decline in oil prices since 2020

Natural gas prices trade lower despite cold weather outlook
- February ’24 Henry Hub lost 17.1c this morning to trade around $2.722 /MMBtu
- The Winter ‘23/’24 strip is down 13.3c to $2.617, and the Summer ’24 strip is down 9.8c to $2.689
- The weather model indicates colder temperatures east of the Rockies, especially in the Midwest and Southeast, with a return to 10-year normal in the next two weeks
- Lower 48 natural gas production fell to 102.56 Bcf/d this weekend, with a 0.37 Bcf/d decrease from last week, mainly due to declines in the South Central and Rockies regions (Criterion)
Oil and gas rig count in the US hovers around a 25-month low (S&P)
- The US oil and natural gas rig count marginally rose to 677 as of December 27, slightly recovering from a 25-month low from the prior week
- This count reflects a 24% decrease from the post-COVID pandemic peak of around 890 rigs
- In the Permian Basin, rig count dropped to 311, the lowest since April 2022, while Eagle Ford fell to 53 rigs, while Bakken, Denver-Julesburg, and Powder River basins remained stable.
- Gas-directed drilling in the Marcellus and Utica shales stayed constant at 25 and 10 rigs, respectively, while Haynesville shale rose to 58 rigs, the highest since mid-June
- The overall slowdown in drilling activity comes amid a bearish outlook for natural gas prices, driven by record production, high inventories, and a mild winter

January 8, 2024