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Last Look - Oil prices rise, but post weekly loss on tariffs and OPEC+ production plans
March Henry Hub settles at the highest level since 2023
It was a particularly volatile week for natural gas prices, with the prompt month advancing 50c and trading as high as $4.50/MMbtu intraday. The March contract settled off the week's highs at $4.23/MMbtu. The rest of the curve traded higher, with Summer ’25 up 36c to $4.32/MMbtu and Winter ‘25/’26 now at $4.71/MMbtu. While weather forecasts drove much of the price action this week, LNG feedgas demand pushed to a record high, helping to support price.
This week, temperatures fell to some of the lowest levels of the season, boosting heating and power demand and likely leading to a sizeable withdrawal from storage. The market has seemingly been focused on how the end of winter will shape up and whether below-average temperatures will continue into March. This week should result in a sizeable 200+ Bcf withdrawal from storage, to be reported by the EIA next week. With US gas inventories already -118 Bcf below the five-year average, next week’s storage report should see the deficit expand further. With inventories set to end winter (in about a month) well below the five-year average, this has lifted prices across the curve. However, higher prices have already led to weaker power burn numbers relative to coal. Natural gas occupied about 65% of the coal+gas mix this week, compared to the 70-75% seen on average in 2024 when prices were much lower. If prices remain high in summer, it could reduce gas demand.
Meanwhile, LNG feedgas demand continued to push higher, further tightening the market. According to data from S&P, gas flow to LNG export facilities reached 16.84 Bcf/d as Plaquemines LNG continues ramping, now at 1.6 Bcf/d. Cheniere reported that the Corpus Christi Stage 3 expansion had produced its first cargo, following the first LNG production in December. Higher demand from LNG facilities is expected to be the primary driver of gas demand growth in 2025, with Corpus Christi Stage 3 beginning to ramp up production.
AEGIS continues to hold a neutral outlook on Summer ’25 prices and a bullish view on Winter ‘25/’26 and beyond.
Natural Gas Factors
Price Trend. (Bullish, Priced In) Gas prices have rebounded sharply over the past few weeks, with prices briefly reaching $4/MMbtu. Cooler weather forecasts, a tightening S&D balance, and shrinking inventory surplus has supported prices.
S&D Balance. (Mostly Bullish, Priced In)
Long Range Weather Forecast. (Bearish, Surprise) Current long-term weather forecasts show temperatures are expected to be above average this winter. Although, it is important to note that the accuracy of long-range forecasts can be low.
Super-warm La Niña Novembers have led to mixed December outcomes, ranging from colder-than-normal to notably warmer. The warmest November (2001) was followed by a warm December, while the second warmest (2016) led to a colder December. Historical data groups these into three December outcomes: colder than CWG (2016), near CWG (2020, 1999), and warmer than CWG (2011, 2001), often influenced by a positive Eastern Pacific Oscillation (+EPO). Current conditions show a weak La Niña, similar to 2020 but with notable differences in ocean temperatures. The CWG outlook remains warmer than the 30-year average but cooler than the 10-year average. The NOAA model suggests a pattern resembling 2016, implying a possible cold December and warm Q1 2025, while a warmer December could mean more cold volatility in early 2025.
1-15 Day Weather. (Bullish, Priced In) Two-week forecasts have supported prices lately, with this January being the third coldest of the past 25 years.
Storage Level. (Mostly Bearish, Priced In) The storage level is a bearish priced-in factor due to the high levels of gas in inventories relative to the five-year average. According to the latest EIA weekly natural gas inventory report, the surplus to the five-year average stands at 21 Bcf above the five-year average and 20 Bcf above last year.
Dry Gas Production. (Bearish, Surprise) These are the most critical drivers of gas prices outside of weather. A material increase in either would pressure prices lower and loosen the supply-demand balance. These are also longer-lasting factors that can weigh on prices for years. Since the start of 2024, gas production has fallen sharply, driven by substantial curtailments and seasonal declines in Appalachia. Given low gas prices, producers may continue to curtail gas production until economics improve. A material drop in production could improve storage balances, but if prices begin to improve, there is a large amount of supply that can be brought back to market, which would be a bearish risk. With some evidence that production is now returning to the market, the dry gas curtailment bubble has been shifted to the bearish quadrant. A large amount of production was likely taken offline this year, which is now waiting to come back. Some operators may also have been drilling and completing wells during this time, which are ready to flow gas if economics have improved enough.
Associated Gas Production.(Bearish, Priced In) With oil prices remaining high and additional egress capacity coming to the Permian in the form of the Matterhorn pipeline, associated gas production may continue to grow in 2024. The Matterhorn pipe will send an additional 2.5 Bcf/d to the Gulf Coast, posing a bearish risk to Henry Hub and regional basis prices such as Houston Ship Channel.
Renewables. (Mostly Bearish, Partly Priced In) Renewables remain a perennial threat to gas prices and gas's share of the power stack. Renewable capacity additions in 2023 are expected to set a new record and are now the second-most prevalent source of electricity generation. Still, renewables have proven unreliable at times, which has exacerbated the global energy squeeze as gas usually serves as a flex-fuel when other sources underperform. We think this is priced in, but the effect at the summer peaks on gas generation has some bearish potential.
LNG Outages. (Bearish, Surprise) Feed-gas levels are at their near max capacity, and if there's any unplanned maintenance event or an outage, it might act as a surprise bearish factor for natural gas prices.
Slow Supply Response. (Bullish, Surprise) If production remains near where it is currently and does not grow into winter, this would be a bullish factor for gas prices. Typically, the Northeast region sees higher production receipts in the higher-demand months of the year. Still, due to lower activity levels over the past year, production growth may be more muted.
LNG Schedule. (Bullish, Surprise) With a significant amount of new LNG feedgas demand coming this year and the next few years, if these facilities startup sooner than anticipated it should be a bullish factor for gas prices. One example of this occuring is the recent startup of Plaquemines LNG, which saw feedgas levels reach more than 1 Bcf/d much sooner than anticipated.
Production Front-Running. (Bearish, Surprise) If producers begin to ramp up gas production in advance of the new LNG demand, this could lead to a temporary mismatch between supply and demand and weaken gas prices. The other option would involve producers waiting for a price signal from the market before increasing output.
Hedge Activity. (Bullish, Surprise) Following the sharp rally in January, many producers may have taken advantage of the higher prices and layered in more hedge volumes. This could result in less selling pressure down the curve if they are more adequelty hedged now.
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