Week Ending November 15

WTI Falls More Than $2 Amid Dollar Strength and Oversupply Concerns

The December NYMEX WTI contract settled lower by $2.89/Bbl to $67.49/Bbl. Prompt prices are now trading near the bottom end of the range that WTI has been trading in since early September. The US dollar index has risen to its highest level in over a year, pressuring crude prices lower, meanwhile concerns of oversupply have led to increased bearish sentiment in oil markets.

The US dollar index has posted significant gains over the past two months, which have been further extended following last week’s US presidential election. Now up more than 6% since the start of October, a strong dollar has likely helped keep crude prices lower, as there is typically an inverse relationship between the two.

In addition, concerns of oversupply in global crude markets have been mounting. This week multiple forecasters lowered their demand expectations for 2024 and 2025, increasing the bearish sentiment around next year. The International Energy Agency warned of a potential 1 MMBbl/d gap between supply and demand next year, while OPEC also cut their forecasts for oil demand. These expectations are mostly driven by weak Chinese consumption and higher supply from both OPEC and non-OPEC producers. Despite OPEC lowering its forecast, the group still remains relatively bullish on the supply-demand picture compared to other forecasters such as the IEA.

Meanwhile, Citigroup said in a note that a second Trump presidency could lead to a net-bearish outlook for crude prices, driven by tariffs and more favorable policies for domestic US oil production.

AEGIS maintains a neutral outlook for 2025 based on projected oversupply and weak demand growth. Potential Middle East disruptions are not included in this base case.

Volatile Trading Week in Gas

Natural gas prices have experienced significant volatility recently due to shifting weather forecasts, fluctuating supply levels, and trader activity. The week saw considerable price movements. On Monday, November 11th, prices closed 26 cents higher than the previous Friday's close of $2.66, driven by cooler changes in weather models over the weekend. However, a significant shift towards warmer forecasts on Thursday led to a 20-cent decline in prices. By Friday, December gas settled at $2.823, reflecting a 16-cent increase for the week.

Market volatility has also been fueled by fluctuations in Lower 48 supply levels. According to S&P Global, U.S. dry gas production was at 100.1 Bcf/d on Monday but rose to approximately 102 Bcf/d by the end of the week. Appalachian production has been particularly responsive, adjusting output quickly based on local gas prices. Starting the week near 32 Bcf/d, it climbed to about 34 Bcf/d by Friday. This flexibility in Appalachian production is expected to persist through mid-2025, assuming the market continues to contend with abundant underground gas storage weighing on prices.

A primary factor contributing to current price weakness is excess storage. The EIA's latest report revealed another bearish build, bringing total working gas stocks to 3.974 Tcf. The last time storage levels surpassed 4 Tcf was in 2016. While we do not anticipate reaching 4 Tcf in 2024, high storage levels present a challenge for the market during the winter months. Projecting to the end of the withdrawal season in April, we estimate approximately 2.1 Tcf of gas will remain in storage under normal weather conditions, which is not conducive to higher prices.

We have maintained a neutral stance on the Cal '25 gas strip, viewing the first half of 2025 as bearish and the second half with greater bullish potential due to anticipated new LNG demand. In September, the April 2025 contract hit $3.43/MMBtu but has since fallen to $2.65/MMBtu as the winter 2024/25 strip declined amid high storage levels. Our bearish outlook on the 1H of Cal '25 has been consistent, shaped by these broader market dynamics.