Week Ending September 13

Oil Posts First Weekly Gain in a Month, Yet China Slowdown and OPEC+ Oversupply Loom

October '24 WTI closed the week $0.95 higher at $68.65/Bbl, snapping a four-week losing streak. Prices found support by Storm Francine, which temporarily halted 0.73 MMBbl/d of the Gulf of Mexico supply although some of these gains were pared back as output began to return. The price recovery may also reflect an unwinding of heavily bearish speculative positions.

WTI remains about $13, or 15% lower this quarter amid concerns over slumping demand, particularly in top importer China. In its monthly report, the IEA said global oil consumption growth in 1H 2024 was just 0.8 MMBbl/d, the lowest since the pandemic, and revised its 2024 demand growth forecast to 0.9 MMBbl/d, a 7.2% reduction from August. The group maintained its 2025 forecast at 0.95 MMBbl/d but warned of potential oversupply if OPEC+ unwinds output cuts.

Meanwhile, China’s oil consumption fell by 0.28 MMBbl/d in July, marking the fourth consecutive month of Y-o-Y contraction, a sharp contrast to the 1.5 MMBbl/d post-Covid surge in 2023. China’s oil demand is now expected to rise by just 0.18 MMBbl/d for FY 2024, down from July’s 0.41 MMBbl/d estimate, as a broad economic slowdown, faster EV adoption, and the growth of the high-speed rail network weigh on consumption.

Against that backdrop, OPEC+ delayed the unwinding of voluntary production cuts by two months in an effort to halt falling oil prices. The move allows time to assess the demand outlook, Libyan outages, quota compliance in existing member nations, and the plan to phase out 2.2 MMBbl/d of cuts. However, with non-OPEC+ supply growth (+1.5 MMBbl/d) outpacing demand growth, OPEC+ could face a significant surplus, even if the additional cuts remain in place.

AEGIS is neutral for the balance 2024 outlook, expecting further tenors to move closer to prompt prices. While OPEC+'s potential supply hikes could curb bullish scenarios, the cartel, known for its disciplined approach since the supply cuts started in October 2022, is still expected to carefully manage production to support prices and avoid an oversupplied market.

Natural Gas Posts Modest Weekly Gain as Hurricane Impacts Fade

The prompt contract advanced by 3c this week, extending last week's gains and settling at $2.31/MMBtu. Contracts further out the curve posted losses, with Winter ‘24/’25 settling 8c lower at $2.99/MMBtu and Summer ’25 losing 5c to finish at $3.02/MMBtu. Prompt month prices were supported this week by lower gas output, driven by Hurricane Francine.

Hurricane Francine made landfall along the Gulf Coast this week and forced the evacuation and shut-in of offshore production facilities. Gulf of Mexico receipts fell from about 1.8 Bcf/d before the storm to 0.2 Bcf/d today. This resulted in total Lower 48 production sliding to the lowest level since last spring of around 97 Bcf/d. The Nautilus pipeline, which transports gas from GoM to Louisiana, is currently under force majeure, with the pipe stating that “Enbridge personnel have finished their assessment of the Ship Shoal 207 platform and Nautilus is ready to resume operations. However, Nautilus will not accept any scheduled quantities until the Enterprise Operated Neptune plant is ready and able to process gas volumes.” Once all operations return to normal over the next few days, production should return to around 1.8-2.0 Bcf/d.

LNG facilities were mostly unaffected by the storm, although Cameron LNG saw flows drop from about 2 Bcf/d to less than 1 Bcf/d. Total US LNG feedgas demand slid to the lower end of its recent range and finished the week at 11.8 Bcf/d. The Cove Point LNG facility on the Atlantic coast is expected to begin its annual maintenance around September 20-October 10, reducing flows from a total capacity of 0.9 Bcf/d to 0 Bcf/d.

AEGIS remains bearish on the Winter ‘24/’25 strip, which recently slid below $3/MMBtu, given what appears to be loose fundamentals. We have a neutral outlook on Summer ’25 and a bullish view on prices from the second half of 2025 and beyond. Swaps may be preferable in the summer months, while costless collars may be preferable in the winter.