Week Ending November 17

Is Oil’s Plunge to July Low’s Attributed to Technical Selling?

December ’23 WTI lost $1.28 or 1.9% this week to finish at $75.89/Bbl. Oil prices fell by more than $11/Bbl in the past four weeks amidst a myriad of factors such as macroeconomic concerns, supply surprises, and technical selling.

Despite OPEC+ producing significantly under quota, their discipline is undermined by an uptick in output from smaller producers like Iran, Iraq, Angola, etc, labeled seasonal by OPEC. This is compounded by increasing non-OPEC supply and an anticipated increase in loadings from Guyana and the North Sea next month.

Additionally, within the CFTC’s managed money category, net-long positions in NYMEX WTI fell to a near five-month low, while short positions hit a four-month high. According to Bloomberg, money managers, who initially bought on bullish options during the Israel-Hamas conflict, are now reversing course. They're increasingly taking short positions, exacerbating the downward pressure on oil prices.

However, analysts expect an OPEC intervention next week as The Financial Times reported that Saudi Arabia is mulling prolonging its voluntary cuts into 2024. Furthermore, according to people familiar with the matter, an additional OPEC+ cut of up to 1 MMBbl/d is now on the table in response to falling prices.

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December Natural Gas Falls Below $3/MMBtu as High Production Continues to Loosen Market

The prompt month contract finished the week at $2.95/MMBtu, down 9c this week and 57c over the past two weeks. Prices fell sharply across the curve, with Summer ’24 continuing to sell off, down 13c this week and 58c over the last two weeks to $3.05/MMBtu. Winter ‘24/’25 fell 14c to $4.03/MMBtu,

Despite weather-driven demand expected to be relatively strong over the next two weeks compared to the ten-year average, prices continued to move lower this week. Two notably bearish events may be behind this price move. Production has remained elevated around 105 Bcf/d after surging last week to record highs, and the EIA reported a significantly larger storage build than the market expected.

Given that storage levels are particularly high, a bullish case for gas would likely require a material decline in gas production, a significantly colder winter, or a combination of the two. With gas output now around 105 Bcf/d for two weeks in a row, this is a much higher level than many anticipated and could imply 2024 estimates may come in higher as well. This has likely contributed greatly to the bearish pressure seen across the forward curve.

On Thursday, the EIA released two weeks' worth of natural gas storage data after a system upgrade delayed last week's report. The November 9 report was in line with market expectations, showing a -6 Bcf withdrawal. However, this week's report took the market by surprise, coming in at 60 Bcf compared to a median expectation of 42 Bcf. According to the Bloomberg survey, even the highest estimate was only for a 49 Bcf injection. This release immediately led to a sharp price decline, which continued throughout the day and into Friday.

AEGIS continues to hold a bearish outlook for the Cal ’24 strip and expects the market to remain in a state of oversupply.