Week Ending June 14

Crude prices recover from last week's drop, settling at a three-week high

The July WTI contract finished the week at $78.45/Bbl, up $3.24 from the prior week. The Cal ’25 strip settled $2.94 higher at $72.77/Bbl and Cal ’26 closed up $1.58 to $69.37/Bbl. Prices have recovered slightly from a three-week drop of nearly $5/Bbl and fully recovered from last week's decline after the OPEC+ meeting.

The International Energy Agency released its latest report this week, calling for oil markets to enter a major surplus later this decade. The agency's near-term outlook was mostly unchanged, besides a slight alteration to its 2025 demand forecast. The IEA sees global consumption leveling at 105.6 MMBbl/d in 2029, about 4% higher than in 2023. Meanwhile, crude production driven by growth from the US is seen rising by 8 MMBbl/d over the same period. The IEA’s outlook for demand, driven by assumptions of high EV adoption and electrification, is in sharp contrast to that of OPEC, who see oil demand continuing to rise through 2050.

A potential driver of weaker near-term demand is slowing growth from China’s refining industry. Outside of 2022, which saw poor Chinese growth from their Covid-Zero policy, crude throughput in China has grown yearly, according to data that goes back to 2004. However, according to a survey of analysts by Bloomberg, throughput could be flat or decline in 2024. The IEA sees only a small increase in throughput. An extended property crisis has weighed on China and its demand for transportation fuels, leading to weaker refinery margins and processing rates. If Chinese demand does falter, this could present a dilemma for OPEC, which is attempting to bring curtailed supply back to the market. A low-demand scenario could see OPEC keeping barrels off the market for longer in an attempt to balance supply and demand.

AEGIS remains bullish the curve as we think prices in further out tenors will roll up towards prompt prices. OPEC’s plan to gradually bring back supply may prevent the most bullish scenarios from playing out. Still, they will also likely attempt to support prices and keep the market balanced, avoiding an oversupplied scenario.

Gas prices finish the week slighlty lower despite ample intraweek volatility.

Prompt-month natural gas finished the week down 3c to $2.88 Friday to Friday. The small weekly decline came amid ample intraweek volatility, where July futures reached as high as $3.15/MMBbtu.

Natural gas prices have been benefiting from above-average June temperatures. If the current forecast holds for the rest of the month, June will be the hottest June on record regarding cooling degree days for the Lower 48. Higher cooling demand causes gas consumption for power to be greater than expected.

One of the factors that weighed on prices this year was the ample amount of natural gas in inventory. The gas surplus to the five-year average currently sits at 573 Bcf as of June 7. The EIA reported a 74 Bcf build in underground storage, coming in near the average analyst estimate of 76 Bcf. The AEGIS estimate missed the actual by 2 Bcf at 72 Bcf. July gas prices pared gains on Thursday morning as the market sold on the news of the 74 Bcf injection.

Looking more regional, Equitrans Midstream Corp. announced that the Mountain Valley Pipeline (MVP) has begun service. MVP is a 2 Bcf/d greenfield pipeline that will move gas from southwest Appalachia to demand centers in the Southeast. “MVP is now available for interruptible or short-term transportation service until long-term firm capacity obligations commence on July 1, “according to Equitrans. A previous analysis done here by AEGIS shows that MVP will be unable to flow the full 2 Bcf/d for some time as there are downstream constraints of the Transco mainline, where MVP terminates. Transco plans to add enhancements and additions to the mainline over the next few years to allow MVP to reach its full potential. Due to the slow ramp-up of this new takeaway capacity, AEGIS suggests the impact on local basis will be minimal.