Week Ending December 23

There are three big factors that we are watching as we enter 2023: China’s demand growth, global recession risk, and Russia’s reaction to the price cap. All considered, we think price risk is to the upside in 2023.

AEGIS would like you to know two things as we go into the holidays:

1. Our Market Summary report’s prices are intraday prices, before the market close today.
   1. Your portfolio values are priced the same as always, with end-of-day settlement prices.
   2. Be aware that liquidity may be poor on some days as we enter the holidays.
   3. Even if the liquidity is low, our traders know how to navigate the market with minimal slippage.
2. Clients have access to live indications on the AEGIS platform. These are customizable. To see the live indications, please go here

The link takes you to the platform. Once you get to the platform, indications are at the bottom right corner under "custom indications"

Note: These are custom indications set by your strategist.

Oil posted a weekly gain but remained on track for the first consecutive quarterly decline since 2019. Feb ’23 WTI has risen $5.71 this week, near $79.98 at 11:35 AM.

Demand concerns around China’s reopening and central banks’ tightening monetary policy have kept a lid on prices. However, imminent risks to supply exist as the market continues to weigh disruptions to seaborne Russian crude exports and any potential OPEC+ change in production quotas.

AEGIS hedging recommendations for crude oil remain costless collars as the risk in 2023 and 2024 is to the upside. A collar would set a price floor but with a cap on upside participation if prices realize much higher than the forward curve. The costless collar is a popular hedging structure among our clients because it leaves room for upside participation if prices rally higher.

Gas prices plunge below $5 this week amid volatile weather forecasts

Despite a winter storm lifting gas demand across the Lower 48, natural gas prices fell across the curve this week, with the Summer ’23 and Winter ‘23/’24 strips falling to their lowest level in five months. The Summer ’23 strip traded as low as $4.20, and the Winter ‘23/’24 strip touched $4.89. This price action may seem inconsistent with the hefty weather-driven demand increases the country is experiencing right now; However, it can be explained by the current weather forecasts for the next two weeks.

Although this weekend will be the coldest of the season so far, forecasts for the final week of December and the first week of January indicate temperatures will be several degrees above the 10-year normal. These anticipated warmer temperatures should produce a well-supplied gas market and smaller storage withdrawals. Further, because most of the upside risk is already represented in forward prices for the peak winter months, warmer weather forecasts tend to lead to outsized selloffs in price.

This week’s forward-price action aligns with our bearish outlook for 2023. Given the lack of demand growth from new LNG facilities and rising production, our view is that the gas market will be well-supplied through mid-2024, so price risk is likely skewed to the downside. Reach out to your AEGIS strategists to learn how to protect your cash flows amid a potentially softer market.