Week Ending January 10

Oil finishes the week at the highest level since October.

Oil prices continued to advance this week, extending last week's gains. The February WTI contract settled $2.71 higher at $76.67/Bbl. Prices are up more than $6/Bbl over the past two weeks. Much of this week’s increase came from a particularly large move on Friday following the tightening of US sanctions on Russia.

Friday’s large price move was driven by reports that the US will toughen sanctions on Russia’s energy sector. 180 tankers, oil traders, and two oil companies were added to the US sanctions list, which, if imposed, could tighten the global supply-demand balance. This follows a move by one of China’s largest ports to ban the offloading of sanctioned tankers. While China does not recognize unilateral sanctions, individual companies have found it difficult to work around the restrictions on Iranian and Russian tankers.

These new proposed sanctions could have a larger impact on Russia’s oil trade than previous measures due to the sanctioning of Gazprom Neft and Surgutneftgas, two large petroleum exporters. The two companies ship about 970 MBbl/d on average. This would be Washington's most direct and aggressive move since sanctions began in 2022, with the new measures doubling the number of tankers on the list of sanctioned ships

AEGIS continues holding a neutral view for 2025 and recommends clients look to hedge aggressively on any strength in the forward curve.

Natural gas volatility continues

Natural gas volatility stayed strong this week as weather models kept extending the duration of the January cold. The prompt February contract ended the week up xx to settle shy of $4.00/MMbtu at $3.96. The Cal 2025 strip finished at its highest level since December 2023 at $3.74. In other words, it is the best price producer hedgers have seen in over a year for Cal 2025. The higher curve has induced a surge in hedging activity among our clients. AEGIS hedging activity reached an all-time high with the recent volatility in both gas and oil.

There’s no other way to put it: January weather is about as bullish as a producer could hope for. It may not be the outright coldest on a given day (like January 2024), but the length of the below-normal weather is impressive. According to the Commodity Weather Group, January heating degree days (HDDs) are expected to be 1024. If confirmed, 1024 HDDs would be 137, more than the 10-year average. This means that January has the chance to draw a full 1 Tcf of gas for the month! This month would also rank as a tie for the fourth coldest in the 2000s.

The gas curve has now repriced higher due to the weather in January. The below-normal weather has removed hundreds of Bcf from storage that otherwise would have been there. For example, our end-of-season (EOS) estimate for storage at the end of this winter (April 2025) has been reduced to about 1.8 Tcf and could end up lower over the next few weeks. This is far from the 2.1 Tcf we had modeled back in Q4 for the same period in April. In other words, January weather has set the gas market up in a much more bullish starting position entering injection season than previously.

AEGIS recommends utilizing costless collars where possible. The gas market has a more bullish skew than downside starting in late 2025 and beyond.