Week Ending December 6

Oil Heads For Weekly Loss Despite Supportive News From OPEC

The prompt WTI contract lost about $1 this week to settle at $67.18/Bbl despite OPEC announcing a delay to their plan to bring production back. Oil prices have been trading in a relatively tight range over the past month, with prices gyrating between $68 and $72/Bbl. Concerns about oversupply in 2025 continue to weigh on prices.

This week’s OPEC+ meeting resulted in an announced delay of three months to the group's plans to begin ramping up oil production through next year. This will increase OPEC production by 2.2 MMBbl/d. Before the delay, this ramp was set to start in January. Despite this bullish news, prices did not see a strong reaction, likely due to this move having been anticipated for several days. Earlier in the week, OPEC delegates told reporters that discussions of a three-month delay were in progress.

Even if OPEC+ keeps supply lower throughout 2025, oversupply could still plague the market based on forecasts from the IEA. The IEA is currently forecasting global supply-demand balances to be loose by more than 1 MMBbl/d, and any additional output from OPEC would add to this oversupply.

AEGIS holds a neutral view on crude prices in 2025, although this view skews to the downside given projections of oversupply and the potential return of OPEC supply. Clients can look to hedge aggressively via swaps on price rallies or use collars if prices in the low $60s are tolerable.

Plaquemines LNG Nears Startup

Natural gas fell on the week, nearly 30c to $3.02 as of Friday’s settle. Most of the price damage was done on Monday after weather models showed a warmer pattern to follow the cold show the eastern US just experienced. Henry Hub for January stayed within a few pennies of $3.00 Tuesday through Friday. We warned that the price fall could happen after the prompt price ran up to $3.60/MMBtu on the backs of cold. Given the high storage and rebounding supply, the gas market would have needed follow-through to stay at those prices. The last two weeks have provided a good opportunity for gas hedgers to add volume.

Regarding new gas demand, Plaquemines LNG is edging closer to taking material feedgas volumes. According to Criterion Research, the facility needs five primary implementation plans for the first LNG. The estimated ramp-up in volume is estimated to be this month. Corpus Christi Stage 3 volumes are also expected to begin this month, with the facilities' smaller modular trains coming online over the next two years. Our view is that it won’t be until much later in 2025 before the market can get tighter on the back of LNG, ex-weather. There is likely enough supply available to offset the LNG ramp in most of 2025. This means gas storage would likely remain elevated and keep prices at bay.

We recommend derisking Cal 2025 but emphasizing the first half of 2025 even more. Swaps are the likely choice here. Cal 2026 has an attractive call skew for producers, and collars could be attractive, even in the summer months when most operators choose to use a swap.