Week Ending November 24

Oil Posts a Fifth Straight Weekly Loss as OPEC Tries to Resolve Quota Dispute

January ’24 WTI lost 35c this week to finish at $75.54/Bbl. Oil extended losses from last week as the market was awaiting OPEC to finalize output levels for 2024.

The OPEC meeting, originally scheduled for Nov. 26, has now been postponed to Nov. 30 due to disagreements, particularly between Saudi Arabia and African members like Angola, Congo, and Nigeria, over 2024 production quotas.

This delay, largely attributed by delegates to Angola and Nigeria's push for higher output levels, heightened concerns over the solidarity of OPEC+. Before the postponement was announced, several analysts were expecting Saudi Arabia to announce an extension of its unilateral 1 MMBbl/d output cuts into 2024 in response to the recent price weakness.

Amidst this situation, it is important to note that while demand growth has been consistent, an increase in supply from non-OPEC and some OPEC+ nations has likely contributed to the downward pressure on oil prices. 

Given the rapid weakening in oil prices, it may be a good time to optimize your hedge book. Your strategist will reach out to discuss potential tailored adjustments and strategies.

Natural Gas Prices Extend Losses, Marking the Third Consecutive Weekly Decline

Natural gas prices fell during this shortened trading week, with the December contract reaching levels not seen since 2021. Prompt month Henry Hub lost 10.5c, or 3.6% this week to finish at $2.855/MMBtu. The selling was not limited to the prompt contract, as prices across the curve fell. News items were limited; the EIA reported a storage withdrawal larger than the market expected, and Freeport LNG received approval to reach full operational status.

The EIA reported a -7 Bcf storage draw, which was on the lower end of expectations but still within the range of the Bloomberg survey, which ranged from a draw of -9 Bcf to a build of 17 Bcf. This report puts US gas inventories at a surplus of 249 Bcf to the five-year average.

Freeport LNG received federal approval to return a part of its export plant to full operation. Its Phase 2 infrastructure, which includes the second ship berth and LNG Loop 2, has been offline since the June 2022 fire, which shuttered the plant for eight months. Feedgas flows into Freeport have averaged about 1.9 Bcf/d over the past few months. Inflows have been increasing recently, with pipeline nominations indicating recent feedgas levels near the max capacity of 2.1 Bcf/d.

AEGIS continues to hold a bearish view on the Cal ’24 strip and a bullish view in 2025 and 2026. We believe persistent oversupply will leave Cal ’24 risked to the downside before significant demand growth in the form of LNG feedgas demand arrives in 2025 and 2026.