Week Ending November 3

Oil Posts a Second Straight Weekly Loss as Israel-Hamas War Premium Fades

As fears of an escalation in the Israel-Hamas conflict recede, oil prices have weakened, with the December NYMEX WTI contract declining by $5.03 this week to $80.51/Bbl. The 2024 calendar strip fell $1.38 to $78.95/Bbl, and the Cal ’25 strip lost 95c to finish at $74.05/Bbl.

Despite the underlying supply deficit, discrepancies in real-time data monitored by shipping analytics firms and major banks indicated a tentative build in oil-on-water inventories. Nevertheless, this is expected to be a short-lived discrepancy due to the noisy nature of inventory data. Analysts from Goldman Sachs indicated that volatility in inventory tracking could’ve weighed on prices as traders react to more immediate and visible data that contradicts the deficit.

On the geopolitical front, the market monitors the Israel-Hamas conflict for any escalation that might draw in Iran, potentially impacting crude exports and regional transport routes. Yet, with no Middle East production disruptions observed, the initial war premium is currently getting no credit in the price action.

In the options market, call skew on WTI and Brent has declined, indicating traders are exiting positions taken to capitalize on a potential rally due to the conflict. Consequently, the implied volatility for both Brent and WTI has dropped to the lowest in a month.

Furthermore, the Fed's recent pause in rate hikes has led to market speculation that the rate hike cycle may be nearing its end, contributing to a weaker dollar.

AEGIS continues to maintain a bullish outlook on oil, given the tight supply situation from OPEC+ production cuts, and continues to recommend hedging WTI using swaps.

Cheniere's Corpus Christi LNG Project Advances to an Early Start by End of 2024

The natural gas curve through 2026 experienced an average 12c lift, even though the prompt-month December contract was unchanged week-on-week at $3.48. Gas future from prompt through 2026 now has an average value of 2026.

On Friday, Baker Hughes reported that active drilling rigs in the US fell by seven to 618, with gas rigs up one to 118. Total rigs are now near the 52-week low. Haynesville now has 38 active gas rigs, down from the low 70’s of 2022 and at the same level observed back in November of 2020. Haynesville production, however, production is at 15.9 Bcf/d so far this month, which is about 300 MMcf/d higher than last year, according to S&P data.

Among the flurry of quarterly earnings calls being conducted this week, Cheniere President and CEO Jack Fusco updated the market on the Corpus Christi LNG Stage 3 project. Fusco said the project is progressing ahead of plan, and they are optimistic that the first LNG production from Train 1 will happen by the end of 2024. The company intends to phase in ‘substantial completion’ from 2Q-3Q2025 through the second half of 2026. The new timeline is up from the prior target of 2H25-1H27. The stage three project will have seven smaller-scale LNG trains with design capacities of just under 200 MMcf/d.

AEGIS continues to see price skew lower than the strip through 2024 as fundamentals lean loose until LNG starts up in earnest. With this in mind, we suggest swaps in summer 2024 and collars in winter strips as call-skew remains strong and beneficial for producers.