Week Ending August 30

Will the Libya Turmoil & Iraq Commitment to Quota Allow Room for OPEC+ Production Tapering?

October '24 WTI contract closed the week $1.28 lower at $73.55/Bbl, marking its third straight weekly loss. Early gains from Middle East tensions were erased on Friday following reports that OPEC+ may revive oil production starting in October.

OPEC+ plans to add 0.18 MMBbl/d each month as they gradually restore output (2.2 MMBbl/d) halted since 2022. Delegates see no sign of delays yet. However, OPEC+ has repeatedly warned it could “pause or reverse” these hikes if needed, especially with prices under pressure from China’s faltering economy.

On August 26, Libya's eastern government announced plans to shut down all oil production and exports due to a conflict with the Tripoli-based government over central bank control and oil revenue. As of Friday, 63% (0.75 MMBbl/d) of production had been halted, with analysts expecting the outage to reach 1 MMBbl/d and last several weeks.

Meanwhile, Iraq exceeded its OPEC+ quota from January to August, producing 4.25 MMBbl/d in July. To compensate, Iraq plans to cut September output to 3.85-3.90 MMBbl/d, below its 4 MMBbl/d quota.

As of July, Russia and Kazakhstan also exceeded their quotas, with Kazakhstan producing 1.55 MMBbl/d against a 1.45 MMBbl/d quota. Kazakhstan will cut 0.13 MMBbl/d from Aug 1 to Sept 10 and 0.4 MMBbl/d from Oct 3 to Nov 11, while Russia plans to address its July excess in Aug and Sept without detailing its plan.

These production curbs could strengthen OPEC+'s case to revive production. However, OPEC+ faces a choice - increase production to maintain market share, risking Brent falling below $80 amid weak global demand, particularly China, and rising non-OPEC supply, or prioritize price strength, aiming to keep Brent above $80 while acknowledging that increased supply could build inventories and weigh on prices.

AEGIS has shifted its balance 2024 outlook to neutral, expecting further tenors to rise toward prompt prices. OPEC+'s gradual supply increase may dampen bullish scenarios. However, the cartel, known for its cautious discipline since October 2022, is still expected to manage production carefully to support prices and prevent an oversupplied market.

Gas Settles Lower for the Third Week as Bearish Weather Forecasts Weigh on Prices

The October Henry Hub contract finished the week lower at $2.13/MMBtu, driven mainly by a further reduction in expected gas demand over the next two weeks. Meanwhile, issues with the construction of Golden Pass LNG have weighed on the forward curve.

With peak summer temperatures behind us and weather forecasts looking into September, near-term gas demand looks particularly weak. For the period of September, which weather forecasts are currently showing, temperatures are expected to be significantly below the ten-year average, which should lead to lower gas-fired power demand. If forecasts pan out, September could be the eighth coolest September of the past 25 years. While the total amount of weather-driven demand is typically much lower in September as we enter the shoulder period, the last few years have seen particularly hot Septembers, which supported prices; this does not appear to be the case this year.

One news item this week that weighed on prices further down the curve was an additional delay to Golden Pass LNG. The project developers submitted a request to FERC to extend the deadline for completion of the facility from November 2026 to November 2029. This delay is driven by issues relating to the bankruptcy of their former construction contractor. Despite this, the facility is more than 80% complete and will likely begin taking volumes for Train 1 much earlier, potentially around the end of 2025.

AEGIS maintains a bearish outlook for Winter ‘'24/’25, a neutral outlook for Summer ’25, and a more positive view on prices into the latter half of the year and beyond. Higher LNG exports should help tighten balances toward 2026, depending on the rate of gas production growth.