January WTI crude oil (CLF26) on Wednesday closed up +0.70 (+1.21%), and January RBOB gasoline (RBF26) closed up +0.0251 (+1.39%). Crude oil and gasoline prices are settled higher on Wednesday.  Dollar weakness on Wednesday boosted crude prices.  Also, doubts about a deal to end the Russian-Ukrainian war sparked some short covering in crude on Wednesday after European Commission Vice President Kallas said today that "we see no indication from Russia that they want peace."  Crude prices raced to their high ...

Core Viewpoint - Oil prices have declined in early Asian trading due to the resumption of crude loadings at the Russian export hub of Novorossiysk, following a two-day suspension [1][2] Group 1: Market Dynamics - Brent crude futures fell by 64 cents to $63.75 per barrel, while WTI crude futures decreased by 66 cents to $59.43 per barrel [1] - Last week's rally of over 2% for both benchmarks was driven by disruptions at Novorossiysk and a neighboring terminal operated by the Caspian Pipeline Consortium [2] - The resumption of loading operations at Novorossiysk has eased immediate supply pressure, as confirmed by industry sources and supported by data from LSEG [2] Group 2: Geopolitical Factors - Ukrainian forces continue to target Russian oil infrastructure, exemplified by an attack on the Ryazan refinery [3] - The market is facing a growing perception of oversupply, largely influenced by OPEC+ output decisions [3] Group 3: Sanctions and Production Activity - Western sanctions against Russian oil firms like Lukoil and Rosneft are expected to intensify after November 21, with U.S. officials considering penalties for countries engaging with Russia [4] - U.S. rig counts increased by three to 417 in the week ending November 14, indicating a modest rise in upstream activity [4] Group 4: Supply Vulnerabilities - Despite the return of exports at Novorossiysk alleviating immediate supply threats, underlying vulnerabilities persist due to ongoing attacks on Russian infrastructure, sanctions effects, and OPEC+ production strategies [5]

Group 1: Market Dynamics - The current geopolitical risks and strong global demand indicate a potential shift towards a bullish market environment, with OPEC+'s production increases possibly insufficient to counter this trend [1] - Reports suggest a possible oil glut in the coming months, yet the market remains stable, influenced by geopolitical threats rather than OPEC+ actions [4][9] - The ongoing conflict and attacks on Russian oil infrastructure are leading to significant disruptions in Russia's export capabilities, impacting global oil supply [5][6] Group 2: Ukraine's Military Impact - Ukraine's drone strikes have effectively targeted Russian oil refineries and logistics, significantly degrading Russia's ability to export petroleum products [2][3] - The introduction of the Flamingo Missile by Ukraine could further escalate the situation, potentially causing substantial damage to Russian oil infrastructure [5] - Ukrainian military actions are seen as the most effective sanctions against Russia's war economy, impacting its hydrocarbon monetization options [3] Group 3: Russian Oil Supply Challenges - Reports indicate severe fuel shortages in Russia, affecting both the war economy and increasing the risk of internal unrest [6] - Despite increasing seaborne crude exports, Russia's lack of storage capacity limits its options, leading to potential domestic production shutdowns if export volumes cannot be maintained [7] - The geopolitical landscape suggests that any increase in Russian crude exports may not alleviate the tightening of global product availability, particularly in consuming regions [8]

Investment Rating - The report maintains a selective and defensive bias, preferring gas over oil in the North American Energy sector [5][7]. Core Insights - WTI oil prices have increased approximately 20% in June due to geopolitical risks and a tight crude market, but prices are expected to trend lower in the second half of 2025 unless there are significant supply disruptions [4][28]. - The report emphasizes a preference for US natural gas over oil, with EQT identified as a top pick in the Exploration & Production (E&P) sector [7][9]. - Refining margins have improved significantly, with a 30% quarter-over-quarter increase, leading to 2Q EBITDA estimates that are about 10% above consensus [7][10]. Summary by Sector US Majors - The US Majors provide exposure to higher oil prices while maintaining resilience if prices decline, supported by strong balance sheets and integrated operations [9]. - Estimated free cash flow (FCF) yields for XOM and CVX are projected at 7% and 8% respectively at a WTI price of $65 [9]. US Exploration & Production (E&P) - The report retains a defensive stance, favoring US gas over oil, with a median FCF yield forecast of 9% for gas at $4.40 Henry Hub [9]. - Positive rate of change is a focus for oil producers, with OW-rated DVN and PR highlighted [9]. Canadian Producers - Large-cap Canadian oil sands operators are expected to perform in line with US peers, with a forecasted median shareholder return yield of 9% at $65 WTI [9]. Energy Services & Equipment (ESE) - Preference is given to international and offshore upstream exposure, gas over oil, and non-upstream exposure, with BKR and SLB identified as key stocks [9]. Refining & Marketing - Refining margins are expected to benefit from summer demand, with key stock picks including VLO and DINO [10]. Midstream Energy Infrastructure - Midstream remains misvalued, with a recommendation to wait for a better entry point before deploying new capital [13]. High Yield Energy (Credit) - The sector is currently underperforming, with a recommendation to focus on gas-levered and balanced commodity exposure over oil-levered credits [13].