Week Ending December 13

Oil Settles Higher, Reversing Last Week’s Losses

The January WTI contract finished the week up about $4 to $71.20/Bbl, near the top of the recent trading range. Rising geopolitical tensions and talk of additional sanctions on Russia and Iran outweighed concerns over a possibly oversupplied market in 2025.

The Biden administration is considering new, harsher sanctions on Russia’s energy trade. Details are still being worked out, but the new sanctions may attempt to restrict or reduce the amount of oil Russia exports. In addition, Treasury Secretary Janet Yellen said a softer oil market could create opportunities to target Russia’s energy sector. The EU plans similar measures targeting Russia’s tanker fleet to be implanted by year-end.

Meanwhile, Donald Trump’s pick for National Security Advisor vowed a return to the maximum pressure campaign on Iran. Mike Waltz said, “You're going to see a huge shift on Iran,” and that “We have to constrain their cash. We have to constrain their oil. We have to go back to maximum pressure.” Almost all Iranian oil is exported to China.

We continue to hold a neutral view on crude prices in 2025, with OPEC+ likely deciding the course of prices through their plan to bring supply back. Any price weakness may be met with a continued delay to OPEC’s plan, while a stronger price environment may allow the group to bring production back to the market.

Natural Gas Finishes Higher on Cold Weather Impacts

The January Henry Hub contract finished higher by 22c at $3.29/MMbtu despite trading as high as $3.56/MMbtu. Cold weather and a larger-than-expected storage withdrawal supported prices this week, although Friday saw much of this week's gains given up.

The EIA reported a -190 Bcf withdrawal from storage, significantly higher than the median expectation of a -172 Bcf draw. This puts total US gas inventories at 3,747 Bcf, 165 Bcf above the five-year average, and 67 Bcf above last year's levels. Next week should see another triple-digit withdrawal from storage, although not quite as large as this week.

While prices advanced much of this week, Friday saw some of these gains erased as prices fell 18c. This decline came despite a further cooling of weather models. Therefore, prices may have become overextended during the week, leading to a short-term liquidation.

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.