Week Ending September 6

Oil Falls to Lowest Since June 2023 as OPEC+ Output Delay Fails to Offset Demand Concerns

October '24 WTI closed the week $5.88 lower at $67.67/Bbl, marking its fourth consecutive weekly decline. Both oil benchmarks fell more than 7% on the week as OPEC+’s decision to delay planned production hikes failed to alleviate broader demand concerns.

Persistent macroeconomic concerns, in addition to outsized spec selling, continue to weigh on oil prices. Friday’s U.S. jobs report fueled speculation about a sizable Fed rate cut but also highlighted slowing oil consumption.

Weak manufacturing data from major economies like China and the U.S. and the sharpest equity sell-off since March 2023 have amplified risk aversion, further pulling oil prices down. Additionally, CFTC's managed money data shows net long positioning in WTI at its least bullish in 17 weeks.

Following a virtual meeting on Thursday, OPEC+ members agreed to delay a planned gradual 2.2 MMBbl/d supply hike by two months, shifting the start to December. The group will add 0.19 MMBbl/d in December and 0.21 MMBbl/d from January onwards, with an option to adjust or pause these hikes depending on market conditions.

The decision to delay production hikes comes against the backdrop of reports of potential recovery in Libyan output and Saudi Aramco's cut to its October OSP for Asia, signaling weak consumption.

In parallel, OPEC+ reaffirmed its compensation cuts of 0.2 MMBbl/d per month through November 2025, as members such as Iraq, Russia, and Kazakhstan have not met their original production quotas.

The delay in supply hikes may have temporarily relieved near-term surplus concerns, but the risk of oversupply remains for 2025. OPEC+ risks adding 2.2 MMBbl/d of additional supply amid slow demand growth and rising production from non-OPEC producers, especially the U.S., Guyana, and Canada. The IEA projects that OPEC+ may need to reduce output from the current 27.2 MMBbl/d to around 26 MMBbl/d to maintain market balance in 1H 2025.

AEGIS has shifted its balance 2024 outlook to neutral, anticipating further tenors to move closer to prompt prices. While OPEC+'s steady supply hikes could curb bullish sentiment, the group, known for its disciplined approach since October 2022, is still expected to carefully manage production to support prices and avoid an oversupplied market.

Natural Gas Posts Weekly Gain Amid Warming Weather Forecasts And a Bullish Inventory Report

The October Henry Hub contract gained 15c this week to settle at $2.27/MMBtu, reversing losses from last week. The Winter ‘24/’25 strip gained 6c to finish the week at $3.06/MMbtu, and Summer ’25 settled 2c higher at $3.07/MMbtu. Weather forecasts warmed slightly, production ticked lower, and the EIA reported a smaller-than-anticipated injection into storage.

Last week, two-week weather forecasts continuously moved lower, potentially making this September the eighth coolest of the past 25 years. That trend reversed this week, with forecasts warming, now showing temperatures around the ten-year normal for the next two weeks. While September is a lower-demand month, cooler temperatures would still lead to higher storage injections, and thus, the warmer shift has supported prices.

The EIA reported a 13 Bcf injection into storage this week, much smaller than the anticipated build of 27 Bcf. The Bloomberg survey ranged from 20 to 33 Bcf, putting the reported number well outside the range of expectations. This was driven by another large -14 Bcf draw from the South-Central region, which we have now seen a few times this summer. This region has continuously surprised analysts, as it is challenging to model salt storage, and the large number of intrastate pipelines makes modeling gas flows difficult.

AEGIS remains bearish on the Winter 24/’25 strip, given what appears to be a loose supply-demand balance heading into winter. Prices may remain under pressure until balances start to improve in the second half of 2025.  Swaps may be preferable in the summer, while costless collars may provide additional value in the winter due to elevated levels of call skew.