Week Ending August 16

Iran Tensions and Strong US Economic Data Unable to Drive Oil Higher

September ’24 WTI reversed some of last week's gains to finish 12c lower to $76.72/Bbl this week. Strong US economic data and jitters surrounding a potential Iranian attack on Israel were unable to counter ongoing demand concerns.

In July, the CPI rose by 2.9% Y-o-Y, indicating that inflation is falling in line with the Fed’s 2% target. Major banks, including JP Morgan, Citi, and Wells Fargo, now forecast a 50 bp rate cut in September. Additionally, the rise in US retail sales, the fastest since early 2023, further underscores a resilient economy.

Oil prices did find support from concerns over Iran’s potential response to the killing of a Hamas leader in July. The White House said a deal from the newly initiated Gaza ceasefire talks was unsuccessful on Thursday.

Meanwhile, Israel, Qatar, the US, and Egypt began discussions on a proposed deal to pause the conflict. Yet, the slow progress in these talks has kept a risk premium on crude prices intact for now.

Additionally, the IEA, in its monthly report, indicated that if OPEC proceeds with its planned production increase next quarter, the oil market could shift from a deficit to a surplus. This potential surplus comes amid weak demand, with Chinese oil consumption declining for the third straight month in June. OPEC plans to add 0.54 MMBbl/d in 4Q 2024 but has left the door open to pause or reverse this decision based on market conditions. Based on a Bloomberg survey, traders and analysts remain divided on whether OPEC will follow through.

AEGIS has shifted its balance 2024 outlook from bullish to neutral, expecting further tenors to rise toward prompt prices. OPEC's plan to gradually increase supply may curb the most bullish scenarios, but the cartel is still expected to manage production carefully to support prices and avoid an oversupplied market.

Natural Gas Prices Fall Despite Bullish EIA Storage Number

The September Henry Hub contract fell 1c to $2.13/MMBtu, Winter ‘24/’25 fell 4c to $3.11/MMBtu, and the Summer ’25 strip lost 14c to settle at $3.09/MMBtu. This price weakness came despite the second-ever July-August storage withdrawal. In addition, NextDecade warned of risks to LNG export projects following recent rulings by the US Court of Appeals.

The EIA reported a rare summer storage withdrawal this week at -6 Bcf. This was the second time a draw had been reported since 2010 for the July-August period, and it led to a further reduction of the storage surplus, bringing it to +375 Bcf to the five-year average. This draw was primarily driven by a substantial withdrawal from the South Central region, at -27 Bcf. Prices rallied immediately following the release but later gave up gains.

This week, LNG developer NextDecade warned about recent rulings from the US Court of Appeals. Earlier this month, courts struck down several key project approvals for NextDecade’s Rio Grande LNG and Glenfarne’s Texas LNG. NextDecade’s CEO said, “If the ruling stands, the precedent that would be set by the court’s action has the potential to impact viability of all federally permitted infrastructure projects because it will be difficult for these projects to attract capital investments until they receive final unappealable permits.” Increased regulatory pressure and permitting requirements may lead to delays to planned LNG facilities, potentially negatively impacting gas prices further down the forward curve.

AEGIS maintains a bearish outlook on Winter ‘'24/’25 and the first half of 2025 before taking a more constructive view on the second half of 2025 and into 2026. Swaps are recommended for summer, while costless collars may be preferable in the winter.