Week Ending March 22

Strong dollar pressures oil prices lower despite signs of tightening market

Oil prices came off their 2024 highs to settle Friday at $80.63/Bbl. WTI steadied near $80/Bbl as a strong dollar added pressure on commodities despite signs of a tighter crude market.

The U.S. dollar index had its strongest week since January following rate cuts from the Swiss National Bank and weakness in China’s yuan, according to Bloomberg. The strength also comes amid a Federal Reserve meeting this week that signaled lower rates remain in the cards this year.

On the oil demand front, global demand appears to be surpassing expectations amid declining U.S. inventories, supply cuts by OPEC+, and attacks on Russian downstream infrastructure. As a barometer of oil market sentiment, outright short contracts held by money managers in WTI have fallen considerably—down from 120k contracts in December 2023 to less than 40k last week. This can be interpreted as a shift to bullish sentiment based on fundamentals or geopolitical circumstances.

We have recently notified oil clients about oil’s highest value curve in the past four months. This comes amid WTI’s highest prompt-month price since early November. Trading activity among AEGIS clients picked up materially as oil prices moved away from the low to mid-seventies. As the prompt-month WTI contract has appreciated so have contract months further in the future where producers are most concentrated. We started to observe more hedging being done in Cal 2026 and some in 2027, where operators were reaching a little further down the curve.

Natural gas prices move lower again this week amid continued oversupply and Freeport outage

The prompt April contract gained 1c this week to settle at $1.66/MMbtu while prices further out the curve sold off. The Winter ‘24/’25 strip lost 4c to $3.33/MMbtu, and the Summer ’25 strip fell by 6c to $3.22/MMbtu.

This week, the storage surplus expanded again following a reported 7 Bcf build in gas inventories. The inventory surplus now stands at 678 Bcf above the five-year average and 411 Bcf above year-ago levels. While this was the first storage injection of 2024, next week will likely show a return to withdrawals, given that this week was about 2.9 °F cooler than last week, before the injection season fully begins.

Freeport LNG continues to operate well below its nameplate capacity, with only one of three trains currently operational. It is expected that one of the two offline trains will return to service in early May, while the second train will return in late May or early June. The cumulative effect on storage resulting from the Freeport outage should amount to about 120 Bcf of extra gas in inventories. While the maintenance occurs, Freeport has begun a debottlenecking project to expand the facility’s capacity by about 200 MMcf/d, which is expected to be complete by July. However, by the time Freeport returns to full capacity, total US LNG feedgas levels will begin to decline slightly and remain lower throughout the summer, as is normally seen with LNG facilities along the Gulf Coast once temperatures begin to warm up.

AEGIS continues to recommend hedging summer months with swaps and winter months with costless collars. Collars can be beneficial for producers due to the high level of call skew generally seen in the winter. Our price outlook remains neutral Summer ’24 and ’25, while bearish the Winter ‘24/’25 strip.