Week Ending February 28

Tariffs and economic slowdown weigh on oil prices amid geopolitical tensions

WTI prices fell almost 1% on Friday, settling at $69.76/Bbl. This marks the first monthly loss since November. The latest data from the Bureau of Economic Analysis shows a slowdown in economic growth, with Q4 2024 GDP estimated at 2.3%, down from 3.1% in Q3. As fears of a cooling economy take hold, traders are also weighing the risks of a potential trade war, which could further dampen demand growth, adding pressure to oil prices.

Amid these economic concerns, the US Treasury Department imposed new sanctions on over 30 individuals and entities facilitating the sale and transportation of Iranian petroleum products. These sanctions are part of President Trump’s “maximum pressure” campaign aimed at reducing Iran’s oil exports. The measures target oil brokers in the UAE and Hong Kong, as well as tanker operators in India and China, with vessels linked to these entities banned from international trade.

In a related move, President Trump has canceled the sanction waiver granted to Chevron, which has been operating in Venezuela and exporting 240 MBbl/d of Venezuelan crude to the United States. With the waiver set to expire in six months, Chevron will gradually scale back its operations, further tightening global oil supply that is already strained by disruptions in both Iran and Venezuela, potentially driving prices higher.

Meanwhile, President Trump’s planned tariffs on imports from Canada and Mexico, set to take effect on March 4, are raising concerns about broader trade disruptions. These include a 25% tax on Mexican imports, a 10% tax on Canadian energy products such as oil and electricity, and an additional 10% tax on Chinese imports. The uncertainty surrounding these tariffs, along with the potential for retaliatory actions, is adding additional risk to the market, further complicating oil price dynamics.

As traders face uncertainty from both geopolitical risks and economic challenges, oil prices are expected to remain volatile. While sanctions on Iran and Venezuela restrict supply, concerns about the US economy are putting downward pressure on prices despite the supply risks. With escalating trade tensions and the market remaining cautious about a potential economic slowdown, AEGIS has taken a neutral position on oil prices, which continue to hover around $70.

Natural gas prices slide as April becomes the prompt month

The April NYMEX contract finished the week down 29c to $3.83/MMbtu, with this week marking the first decline in three weeks. Gas prices have begun to correct following last week's surge to more than $4.30/MMbtu. Weather forecasts have moderated somewhat, and production has recovered. Still, prices for the next few winter seasons have been left in a backwardated pattern, with Winter ‘25/’26 trading at a substantial premium to Winter ‘26/’27.

Lower 48 average temperatures for the next two weeks are currently forecast to be mostly below the ten-year average, although by a smaller margin than had previously been estimated. In addition, temperatures have begun to increase as we head out of winter. Last week’s cold snap led to a sizeable -261 Bcf withdrawal from storage being reported by the EIA this week. Withdrawals should shrink over the next few weeks as temperatures increase and the heating season draws to a close.

As gas prices rallied across the curve in recent weeks, the next few seasons have become increasingly backwardated. The Winter ‘25/’26 strip is now trading at a premium to Winter ‘26/’27 of more than 30c. While this occurred occasionally in prior years, Winter ‘25/’26 traded at a discount throughout 2024. This could be driven by the sizable reduction in storage this winter, lowering estimates for how much gas will be available next November combined with expectations for rising demand in 2025. Market participants may be more concerned about supply-demand balances for next winter following the recent cold weather we have seen and assigning a higher amount of risk premium.

AEGIS recommends clients hedge summer months with swaps, while producers may find collars to be favorable in winter months. Winters see higher call skew or the relative expensiveness of call options to put options, giving a collar a higher floor price.