Week Ending December 20

Oil finishes the week lower amid a strong dollar and weak Chinese demand

The prompt WTI contract ended the week down by nearly $2 to $69.46/Bbl, with prices still stuck in the recent trading range. This week's major headlines involved crude demand data showing that Chinese refining remains weak, the Federal Reserve’s outlook for 2025 giving extra strength to the US dollar, and new sanctions on Russia and Iran.

It was reported that refinery throughput in China fell to a five-month low in November, driven by a combination of maintenance and weak margins. Apparent oil demand fell 2.1% year-over-year and is down more than 3% from the start of 2024. While the Chinese government continues to prop up the economy with stimulus and lower rates, this has yet to boost oil consumption.

On Wednesday, the Federal Reserve cut interest rates by 25bps, but Fed chair Jerome Powell’s commentary on 2025 sent the US dollar significantly higher. The Federal Reserve may shift its focus in 2025 and seek fewer interest rate cuts. The US dollar is now near the highest levels in two years, which has pressured crude prices.

Additional sanctions on Russia and Iran have been a topic of focus for the US and EU lately. The EU added more Russian vessels to its list of sanctioned tankers, while the US sanctioned more Iranian ships. This comes as Trump’s pick for National Security Advisor has vowed a return to the maximum pressure policy on Iran.

AEGIS continues to hold a neutral view on 2025 prices but leans bearish. Supply is forecasted to outpace demand, and demand forecasts continue to underwhelm, while OPEC may continue to delay the unwind of its voluntary production cuts.

Natural gas surges higher

Natural gas bulls had a great week as the January contract soared nearly 50c to settle at $3.76/MMbtu on Friday. Surprisingly, there wasn’t something concrete to point to for the scale of the rally. Weather models didn’t show impressive cold outside the few days of the expected cold shot this weekend. In fact, a period of super-warming follows at the end of the month. There were indications that the weather pattern setup could materialize colder as we enter January, and this, combined with the fact that we are heading into a weekend, likely caused traders to cover short positions to avoid exposure over Saturday and Sunday.

Additional gas demand growth has started coming from Venture Global’s new Plaquemines facility in Louisiana. The plant’s feed gas volumes were at 400 MMcf/d on Friday as Venture Global worked through progressing all of its trains. The company also received approval from FERC to load cargo on or after December 21. Plaquemines LNG is the first new LNG facility in the Lower 48 in some time and will help bring new gas demand growth while likely reaching Phase 1 capacity by 3Q of 2025.

In other LNG news, Energy Transfer’s Lake Charles LNG moved closer toward FID after inking a deal with Chevron for a 2 Mt/y offtake contract. This was the first public contract since the DOE released its long-awaited export study earlier this week. The addition of Chevron now puts the 12 Mt/y project at more than 80% of its capacity under longer-termed contracts. Energy Transfer LNG President Tom Mason said, “We believe that Lake Charles is the most compelling LNG project on the Gulf Coast, and we continue to make significant progress towards full commercialization of this project,.”

AEGIS remains neutral on the Cal 2025 strip at $3.40/MMbtu, but bearish 1H ’25 and bullish 2H ’25. Assuming normal weather, we still expect a rather high 1.98 Tcf storage exit coming out of winter. The gas market in 2026 is priced at $3.82/MMBtu and has room to move higher if things unfold as we assume. This part of the curve has an attractive call skew for producers, and we recommend hedging it with collars.