Week Ending July 5

Oil Holds Near Two-Month Highs Amid Supply Concerns and Renewed Geopolitical Risks

Prompt month WTI gained $1.62 this week to settle at $83.16/Bbl. The 2025 Calendar strip posted a $1.32 weekly gain to finish the week at $75.90/Bbl, the highest settlement in two years. With oil’s backwardation intact and strengthening in the past month, the August contract has gained $2.43 over the past two weeks and is up nearly $10 from the lowest point in June.

Oil prices posted a fourth consecutive weekly gain driven by renewed geopolitical risks, some supply concerns, and hopes of strong summer fuel demand.

Prices found support as EIA reported a 12.2 MMBbl inventories draw last week, compared with Bloomberg’s estimation for a draw of 0.41 MMBbl. This was the biggest inventory draw in almost a year. Meanwhile, on a four-week average basis, gasoline consumption rose for the first time in a year.

In other supply news, Russian oil producers Rosneft and Lukoil are set to cut oil exports by 0.22 MMBbl/d in July as they resume operations at their refineries, reported Reuters.

Additionally, based on preliminary data, Energy Aspects said in a note to clients this week that “In June, OPEC+ exports are sharply lower, led by the Gulf countries and Iraq, in part due to summer crude burn amid the ongoing heatwave in the Middle East”

On the geopolitical front, Israel weathered an intense missile assault from Hezbollah militants across the Lebanese border, escalating concerns of a potential widespread regional conflict that could draw in the US and Iran. This came as Hamas has largely agreed to a temporary ceasefire plan proposed by the US. In response, Israel is sending negotiators to Qatar to finalize the terms of the agreement.

AEGIS remains bullish on the curve, expecting prices in further out tenors to roll up towards prompt prices. While OPEC’s plan to gradually bring back supply in 4Q 2024 might prevent the most bullish scenarios, the cartel reiterated its support for prices and maintaining market balance, avoiding an oversupplied oil market.

Furthermore, the U.S. hurricane season is underway. Hurricane Beryl made landfall in Mexico and may disrupt production and refining operations on the Gulf Coast at some point.

Natural Gas Continues to Slide for a Fourth Week as Weather Moderates And Production Rises

The August Henry Hub contract fell by 28c this week to $2.32/MMbtu and is now down 51c over the past two weeks and nearly $1 from its peak at $3.22/MMbtu four weeks ago. Prices have collapsed due to weaker weather forecasts and production, which appears to be trending higher. This comes despite a shrinking storage surplus.

While July is currently forecast to be the fifth hottest of the past twenty years, weather forecasts have given up a large amount of demand over the past two weeks. Given an above-average number of CDDs, power sector gas demand should still run above average, but the market will likely require stronger, more persistent heat to react positively.

Weakening short-term demand expectations were not the only driver of lower pricing. Lower 48 gas production has been trending higher over the past few weeks, averaging about 101.79 Bcf/d this week. This is the highest weekly average since early April, with gas output slowly ticking higher since reaching a low point of about 98 Bcf/d in May, according to S&P data. If production continues to rise, prices may weaken further as consistently lower production will likely be needed to keep the market balanced.

Despite these factors, the storage surplus to the five-year average has continued to shrink, falling again this week to +496 Bcf. With a relatively tight underlying supply-demand balance and above-average weather-driven demand, the surplus should shrink further as summer continues.

AEGIS maintains a bearish outlook on gas for Winter ‘24/’25 and the first half of 2025. Beyond this period we take a more positive view given the sizable increase in LNG demand coming.