Week Ending March 19

WTI finished Friday at $61.42, down nearly $4.00/Bbl week-over-week after Thursday's 8% price route. Rumblings of weak physical crude demand in Asia, along with other factors, contributed to a drop in prices across the entire forward curve. Since last Friday's close, Bal 2021 fell $3.55/Bbl, while Cal 2022 fell $2.06/Bbl. Thursday's price wash-out likely had more to do with trader behavior and speculator exits rather than longer-term fundamentals.

According to Bloomberg, there have been reports of China buying sanctioned Iranian crude oil, pushing out other would-be sellers in the market. Oil from Iran is heavily discounted due to American sanctions. In China, it usually trades at a $3.00/Bbl to $5.00/Bbl discount to the Brent crude benchmark, according to traders cited by Bloomberg.

The recent price decline, if it holds, may push Saudi Arabia and OPEC+ to continue its cautious supply approach as the pace of demand recovery remains unclear. OPEC+ will meet early next month to discuss its policy.

We have been consistent in recommending hedges as the market has continued to rally. Producers who hedge accretively & proactively tend to do the best. AEGIS structure recommendations still favor the swap when looking to add hedge volumes through Cal 2022.

Natural gas prices for the next twelve months have continued to show weakness. The prompt April contract is down nearly 25c to $2.53/MMBtu since March 1, and the Summer 2021 and Winter 2021-2022 strips are down 26c and 19c, respectively. The near-term weakness comes as the weather continues to be mild or above-average for most U.S. demand centers.

March has trended toward the warmer-end in terms of HDDs compared to the past 20 years, and early forecasts by Commodity Weather Group show much of the same for April. The duration of mild weather following February's deep freeze has taken a toll on storage levels. The traded ICE product for end-of-season storage settled Friday at 1.75 Tcf. This is still slightly lower than the five-year average.

Despite the recent market weakness, which has carried over into the Summer 2021 and Winter 2021-2022 strips, we remain bullish. When normalizing for weather, we believe the market is under supplied on a daily basis. The past few underwhelming net withdrawals from storage may have been concerning to the bulls, but the fundamentals look constructive longer-term.

AEGIS trading recommendations remain the same as last week. A combination of swaps and collars for the remaining Summer 2021 strip and collars for the remainder of the curve given the upward-bias in our view.